AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 6, 2002
Registration No. 333-_______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM S-4
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
------------------
CHESAPEAKE ENERGY CORPORATION*
(exact name of registrant as specified in its charter)
OKLAHOMA 1311 73-1395733
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification No.)
Organization)
6100 NORTH WESTERN AVENUE AUBREY K. MCCLENDON
OKLAHOMA CITY, OKLAHOMA 73118 CHAIRMAN OF THE BOARD AND
(405) 848-8000 CHIEF EXECUTIVE OFFICER
(Address, Including Zip Code, 6100 NORTH WESTERN AVENUE
and Telephone Number, Including Area Code, OKLAHOMA CITY, OKLAHOMA 73118
of Registrant's Principal Executive Offices) (405) 848-8000
(Name, Address, Including Zip Code,
and Telephone Number, Including
Area Code, of Agent for Service)
------------------
Copy to:
JAMES M. PRINCE, ESQ.
VINSON & ELKINS L.L.P.
2300 FIRST CITY TOWER
1001 FANNIN STREET
HOUSTON, TEXAS 77002-6760
713-758-3710
713-615-5962 (FAX)
------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER NOTE (1) PRICE (1) REGISTRATION FEE
- ---------------------------------------- ------------ ------------ ------------ ----------------
9% Senior Notes due 2012 . . . . . . . . $250,000,000 100% $250,000,000 $23,000
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f) under the Securities Act of 1933.
* Includes certain subsidiaries of Chesapeake Energy Corporation identified on
the following pages.
THE AMES COMPANY, INC.
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA 73-1470082
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
CARMEN ACQUISITION CORP.
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA 73-1604860
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
CHESAPEAKE ACQUISITION CORPORATION
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA 73-1528271
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
CHESAPEAKE ENERGY LOUISIANA CORPORATION
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA 73-1524569
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA 73-1384282
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
CHESAPEAKE LOUISIANA, L.P.
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA 73-1519126
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
CHESAPEAKE OPERATING, INC.
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA 73-1343196
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
CHESAPEAKE PANHANDLE LIMITED PARTNERSHIP
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA 73-1565350
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
CHESAPEAKE ROYALTY COMPANY
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA 73-1549744
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
GOTHIC ENERGY CORPORATION
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA 22-2663839
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
GOTHIC PRODUCTION CORPORATION
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA 73-1539475
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
NOMAC DRILLING CORPORATION
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA 73-1606317
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
CHESAPEAKE MOUNTAIN FRONT CORP.
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA 73-1238619
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
SAP ACQUISITION CORP.
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA 73-1622555
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
CHESAPEAKE-STAGHORN ACQUISITION L.P.
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA 73-1612854
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
CHESAPEAKE KNAN ACQUISITION CORPORATION
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA 73-1300132
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
CHESAPEAKE ENO ACQUISITION CORP.
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA 82-0553595
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
CHESAPEAKE BETA CORP.
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA 48-1270813
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
CHESAPEAKE DELTA CORP.
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA [APPLIED FOR]
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
CHESAPEAKE FOCUS CORP.
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA [APPLIED FOR]
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
CHESAPEAKE SIGMA, L.P.
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA [APPLIED FOR]
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
EACH REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
PROSPECTUS
CHESAPEAKE ENERGY CORPORATION
OFFER TO EXCHANGE UP TO
$250,000,000 OF 9% SENIOR NOTES DUE 2012
FOR
$250,000,000 OF 9% SENIOR NOTES DUE 2012
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
TERMS OF THE EXCHANGE OFFER
o We are offering to exchange up to $250,000,000 of our outstanding 9%
Senior Notes due 2012 for new notes with substantially identical terms
that have been registered under the Securities Act and are freely
tradable.
o We will exchange all outstanding notes that you validly tender and do
not validly withdraw before the exchange offer expires for an equal
principal amount of new notes.
o The exchange offer expires at 5:00 p.m., New York City time, on
__________, 2002, unless extended. We do not currently intend to extend
the exchange offer.
o Tenders of outstanding notes may be withdrawn at any time prior to the
expiration of the exchange offer.
o The exchange of outstanding notes for new notes will not be a taxable
event for U.S. federal income tax purposes.
TERMS OF THE NEW 9% SENIOR NOTES OFFERED IN THE EXCHANGE OFFER
MATURITY
o The new notes will mature on August 15, 2012.
INTEREST
o Interest on the new notes is payable on February 15 and August 15 of
each year, beginning February 15, 2003.
o Interest will accrue from August 12, 2002.
REDEMPTION
o We may redeem some or all of the new notes at any time on or after
August 15, 2007 at redemption prices listed in "Description of the New
Notes -- Optional Redemption," and we may redeem some or all of the new
notes before that date by the payment of a make-whole premium.
o Subject to certain limitations, we may also redeem up to 35% of the new
notes using the proceeds of certain equity offerings completed before
August 15, 2005.
CHANGE OF CONTROL
o If we experience a change of control, subject to certain conditions, we
must offer to purchase the new notes.
RANKING
o The new notes are unsecured. The new notes rank equally in right of
payment with all of our other existing and future senior debt and
senior in right of payment to all of our future subordinated debt.
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PLEASE READ "RISK FACTORS" ON PAGE 6 FOR A DISCUSSION OF FACTORS YOU
SHOULD CONSIDER BEFORE PARTICIPATING IN THE EXCHANGE OFFER.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------------------------------------------------------------
THE DATE OF THIS PROSPECTUS IS ________, 2002.
This prospectus is part of a registration statement we filed with the
Securities and Exchange Commission. In making your investment decision, you
should rely only on the information contained in this prospectus and in the
accompanying letter of transmittal. We have not authorized anyone to provide you
with any other information. If you receive any unauthorized information, you
must not rely on it. We are not making an offer to sell these securities in any
state where the offer is not permitted. You should not assume that the
information contained in this prospectus, or the documents incorporated by
reference into this prospectus, is accurate as of any date other than the date
on the front cover of this prospectus or the date of such document, as the case
may be.
____________________
TABLE OF CONTENTS
PROSPECTUS SUMMARY..........................................................1
RISK FACTORS................................................................6
EXCHANGE OFFER.............................................................14
RATIOS OF EARNINGS TO FIXED CHARGES........................................25
USE OF PROCEEDS............................................................25
DESCRIPTION OF THE NEW NOTES...............................................26
FEDERAL INCOME TAX CONSIDERATIONS..........................................57
PLAN OF DISTRIBUTION.......................................................58
LEGAL MATTERS..............................................................60
EXPERTS....................................................................60
WHERE YOU CAN FIND MORE INFORMATION........................................60
____________________
i
PROSPECTUS SUMMARY
This summary may not contain all the information that may be important
to you. You should read this entire prospectus and the documents we have
incorporated into this prospectus by reference before making an investment
decision. You should carefully consider the information set forth under "Risk
Factors." In addition, certain statements include forward-looking information
which involves risks and uncertainties. Please read "Forward-Looking
Statements." Unless this prospectus otherwise indicates or the context otherwise
requires, the terms "we," "our," "us" "Chesapeake" or the "Company" as used in
this prospectus refer to Chesapeake Energy Corporation and its subsidiaries.
THE COMPANY
We are among the ten largest independent natural gas producers in the
United States, owning interests in approximately 9,600 producing oil and gas
wells. We believe our estimated proved reserves are 2.0 trillion cubic feet of
gas equivalent as of June 30, 2002. Approximately 90% of our proved reserves are
natural gas and 86% of our proved reserves are located in the Mid-Continent
region of the United States, which includes Oklahoma, western Arkansas,
southwestern Kansas and the Texas Panhandle. We have smaller operations in the
Deep Giddings field in Texas, the Tuscaloosa Trend in Louisiana, the Permian
Basin region of southeastern New Mexico and the Williston Basin of North Dakota
and Montana.
Our executive offices are located at 6100 North Western Avenue,
Oklahoma City, Oklahoma 73118, and our telephone number is (408) 848-8000.
THE EXCHANGE OFFER
On August 12, 2002, we completed a private offering of the outstanding
notes. We entered into a registration rights agreement with the initial
purchasers in the private offering in which we agreed to deliver to you this
prospectus and to use our best efforts to complete the exchange offer within 240
days after the date we issued the outstanding notes.
Exchange Offer.................. We are offering to exchange new notes for
outstanding notes.
Expiration Date................. The exchange offer will expire at 5:00 p.m. New
York City time, on ________________, 2002,
unless we decide to extend it.
Condition to the Exchange Offer. The registration rights agreement does not
require us to accept outstanding notes for
exchange if the exchange offer or the making
of any exchange by a holder of the outstanding
notes would violate any applicable law or
interpretation of the staff of the SEC. A
minimum aggregate principal amount of
outstanding notes being tendered is not a
condition to the exchange offer.
Procedures for Tendering
Outstanding Notes............ To participate in the exchange offer, you must
complete, sign and date the letter of
transmittal, or a facsimile of the letter of
transmittal, and transmit it together with all
other documents required by the letter of
transmittal, including the outstanding notes
that you wish to exchange, to The Bank of New
York, as exchange agent, at the address
indicated on the cover page of the letter of
transmittal. In the alternative, you can
tender your outstanding notes by following the
procedures for book-entry transfer described
in this prospectus.
If your outstanding notes are held through The
Depository Trust Company and you wish to
participate in the exchange offer, you may do
so through the automated tender offer program
of The Depository Trust Company. If you tender
under this program, you will agree to be bound
by the letter of transmittal that we are
providing with this
1
prospectus as though you had signed the letter
of transmittal.
If a broker, dealer, commercial bank, trust
company or other nominee is the registered
holder of your outstanding notes, we urge you
to contact that person promptly to tender your
outstanding notes in the exchange offer.
For more information on tendering your
outstanding notes, please refer to the sections
in this prospectus entitled "Exchange Offer --
Terms of the Exchange Offer," "-- Procedures
for Tendering" and "-- Book-Entry Transfer."
Guaranteed Delivery Procedures.. If you wish to tender your outstanding notes
and you cannot get your required documents to
the exchange agent on time, you may tender
your outstanding notes according to the
guaranteed delivery procedures described in
"Exchange Offer -- Guaranteed Delivery
Procedures."
Withdrawal of Tenders........... You may withdraw your tender of outstanding
notes at any time prior to the expiration date.
To withdraw, you must have delivered a written
or facsimile transmission notice of withdrawal
to the exchange agent at its address indicated
on the cover page of the letter of transmittal
before 5:00 p.m. New York City time on the
expiration date of the exchange offer.
Acceptance of Outstanding Notes
and Delivery of New Notes.... you fulfill all conditions required for
proper acceptance of outstanding notes, we will
accept any and all outstanding notes that you
properly tender in the exchange offer on or
before 5:00 p.m. New York City time on the
expiration date. We will return any outstanding
note that we do not accept for exchange to you
without expense as promptly as practicable
after the expiration date. We will deliver the
new notes as promptly as practicable after the
expiration date and acceptance of the
outstanding notes for exchange. Please refer to
the section in this prospectus entitled
"Exchange Offer -- Terms of the Exchange
Offer."
Fees and Expenses............... We will bear all expenses related to the
exchange offer. Please refer to the section in
this prospectus entitled "Exchange Offer --
Fees and Expenses."
Use of Proceeds................. The issuance of the new notes will not provide
us with any new proceeds. We are making this
exchange offer solely to satisfy our
obligations under our registration rights
agreement.
Consequences of Failure to
Exchange Outstanding Notes... If you do not exchange your outstanding notes
in this exchange offer, you will no longer be
able to require us to register the outstanding
notes under the Securities Act except in the
limited circumstances provided under our
registration rights agreement. In addition, you
will not be able to resell, offer to resell or
otherwise transfer the outstanding notes unless
we have registered the outstanding notes under
the Securities Act, or unless you resell, offer
to resell or otherwise transfer them under an
exemption from the registration requirements
of, or in a transaction not subject to, the
Securities Act.
2
U.S. Federal Income Tax
Considerations............... The exchange of new notes for outstanding
notes in the exchange offer should not be a
taxable event for U.S. federal income tax
purposes. Please read "Federal Income Tax
Considerations."
Exchange Agent.................. We have appointed The Bank of New York as
exchange agent for the exchange offer. You
should direct questions and requests for
assistance, requests for additional copies of
this prospectus or the letter of transmittal
and requests for the notice of guaranteed
delivery to the exchange agent addressed as
follows: The Bank of New York, Corporate Trust
Operations, Reorganization Unit, 101 Barclay
Street - 7 East, New York, New York, 10286.
Eligible institutions may make requests by
facsimile at (212) 298-1915.
3
TERMS OF THE NEW NOTES
The new notes will be identical to the outstanding notes except that
the new notes are registered under the Securities Act and will not have
restrictions on transfer, registration rights or provisions for additional
interest and will contain different administrative terms. The new notes will
evidence the same debt as the outstanding notes, and the same indenture will
govern the new notes and the outstanding notes.
The following summary contains basic information about the new notes
and is not intended to be complete. It does not contain all the information that
is important to you. For a more complete understanding of the new notes, please
refer to the section of this prospectus entitled "Description of the New Notes."
Issuer.......................... Chesapeake Energy Corporation.
Notes Offered................... $250,000,000 in aggregate principal amount of
9% Senior Notes due 2012.
Maturity........................ August 15, 2012.
Interest on the New Notes....... 9% annually.
Interest Payment Dates.......... February 15 and August 15 of each year,
commencing on February 15, 2003.
Sinking Fund.................... None.
Optional Redemption............. On or after August 15, 2007, we may redeem some
or all of the notes at the redemption prices
listed in the "Description of the New Notes --
Optional Redemption" section of this
prospectus, plus accrued but unpaid interest to
the date of redemption.
Until August 15, 2005, we may choose to redeem
up to 35% of the original principal amount of
the notes (and any additional notes of the same
series that we may issue later) with money we
raise in certain equity offerings, as long as:
o we pay the holders of notes (and any such
additional notes) redeemed a redemption price
of 109% of the principal amount of the notes
(and any such additional notes) we redeem,
plus accrued but unpaid interest to the date
of redemption; and
o at least 65% of the original aggregate
principal amount of the notes (and any
additional notes) remains outstanding after
such redemption.
In addition to the foregoing, we may redeem
some or all of the notes prior to August 15,
2007 by the payment of a make-whole premium
described in the "Description of the New Notes
-- Optional Redemption" section of this
prospectus.
Change of Control............... If a Change of Control of our company occurs,
subject to certain conditions, we must give
holders of the new notes an opportunity to
sell us their notes at a purchase price of
101% of the principal amount of the new notes,
plus accrued but unpaid interest to the date
of purchase. The term "Change of Control" is
defined in the "Description of the New Notes
-- Certain Definitions" section of this
prospectus.
4
Guarantees...................... The new notes will be unconditionally
guaranteed, jointly and severally, by each of
our existing and future restricted
subsidiaries. All of our existing subsidiaries
other than Chesapeake Energy Marketing, Inc.
are restricted subsidiaries.
Ranking......................... The new notes will be unsecured and will rank
equally in right of payment to all of our
existing and future senior indebtedness. The
new notes will rank senior in right of payment
to all of our future subordinated indebtedness.
Please read "Description of the New Notes --
Ranking."
Specified Covenants............. The indenture governing the new notes contains,
among other things, limitations on our ability
and the ability of our restricted subsidiaries
to:
o incur additional indebtedness;
o pay dividends on our capital stock or redeem,
repurchase or retire our capital stock or
subordinated indebtedness;
o make investments and other restricted
payments;
o create restrictions on the payment of
dividends or other amounts to us from our
restricted subsidiaries;
o incur liens;
o engage in transactions with affiliates;
o sell assets; and
o consolidate, merge or transfer assets.
All of these limitations are subject to a
number of important exceptions and
qualifications, which are described in the
"Description of the New Notes -- Certain
Covenants" section of this prospectus.
Transfer Restrictions; Absence
of a Public Market for
the Notes ................... The new notes generally will be freely
transferable, but will also be new securities
for which there will not initially be a market.
There can be no assurance as to the development
or liquidity of any market for the new notes.
RISK FACTORS
Please read "Risk Factors," beginning on page 6 of this prospectus, for
a discussion of certain factors that you should consider before participating in
the exchange offer.
5
RISK FACTORS
In addition to the other information set forth elsewhere or
incorporated by reference in this prospectus, the following factors relating to
our company and the exchange offer and the new notes should be considered
carefully in deciding whether to participate in the exchange offer.
RISKS RELATED TO OUR BUSINESS
OIL AND GAS PRICES ARE VOLATILE. A DECLINE IN PRICES COULD ADVERSELY
AFFECT OUR FINANCIAL RESULTS, CASH FLOWS, ACCESS TO CAPITAL AND ABILITY TO GROW.
Our revenues, operating results, profitability, future rate of growth
and the carrying value of our oil and gas properties depend primarily upon the
prices we receive for our oil and gas. Prices also affect the amount of cash
flow available for capital expenditures and our ability to borrow money or raise
additional capital. The amount we can borrow from banks is subject to periodic
redeterminations based on prices specified by our bank group at the time of
redetermination. In addition, we may have ceiling test writedowns in the future
if prices fall significantly.
Historically, the markets for oil and gas have been volatile and they
are likely to continue to be volatile. Wide fluctuations in oil and gas prices
may result from relatively minor changes in the supply of and demand for oil and
natural gas, market uncertainty and other factors that are beyond our control,
including:
o worldwide and domestic supplies of oil and gas;
o weather conditions;
o the level of consumer demand;
o the price and availability of alternative fuels;
o risks associated with owning and operating drilling rigs;
o the availability of pipeline capacity;
o the price and level of foreign imports;
o domestic and foreign governmental regulations and taxes;
o the ability of the members of the Organization of Petroleum
Exporting Countries to agree to and maintain oil price and
production controls;
o political instability or armed conflict in oil-producing
regions; and
o the overall economic environment.
These factors and the volatility of the energy markets make it
extremely difficult to predict future oil and gas price movements with any
certainty. Declines in oil and gas prices would not only reduce revenue, but
could reduce the amount of oil and gas that we can produce economically and, as
a result, could have a material adverse effect on our financial condition,
results of operations and reserves. Further, oil and gas prices do not
necessarily move in tandem. Because approximately 90% of our proved reserves are
currently natural gas reserves, we are more affected by movements in natural gas
prices.
OUR LEVEL OF INDEBTEDNESS MAY ADVERSELY AFFECT OPERATIONS AND LIMIT OUR
GROWTH, AND WE MAY HAVE DIFFICULTY MAKING INTEREST AND PRINCIPAL PAYMENTS ON OUR
INDEBTEDNESS AS THEY BECOME DUE.
As of June 30, 2002, we had long-term indebtedness of $1.3 billion,
which included bank indebtedness of approximately $45 million. Our long-term
indebtedness represented approximately 64% of our total book
6
capitalization at June 30, 2002. As of August 30, 2002 after the issuance of the
original notes, we had long-term indebtedness of approximately $1.55 billion,
which included no bank indebtedness. We will continue to be highly leveraged
after the exchange offer.
Our level of indebtedness affects our operations in several ways,
including the following:
o a significant portion of our cash flows must be used to
service our indebtedness; for example, for the six months
ended June 30, 2002, interest (including capitalized interest)
on our borrowings was $53.9 million and equaled approximately
23% of EBITDA. As a result, our business may not generate
sufficient cash flows from operations to enable us to continue
to meet our obligations under our indebtedness;
o a high level of debt increases our vulnerability to general
adverse economic and industry conditions;
o the covenants contained in the agreements governing our
outstanding indebtedness limit our ability to borrow
additional funds, dispose of assets, pay dividends and make
certain investments;
o our debt covenants may also affect our flexibility in planning
for, and reacting to, changes in the economy and in our
industry; and
o a high level of debt may impair our ability to obtain
additional financing in the future for working capital,
capital expenditures, acquisitions, general corporate or other
purposes.
We may incur additional debt, including significant secured
indebtedness, in order to make future acquisitions or to develop our properties.
A higher level of indebtedness increases the risk that we may default on our
debt obligations, including the new notes. Our ability to meet our debt
obligations and to reduce our level of indebtedness depends on our future
performance. General economic conditions, oil and gas prices and financial,
business and other factors affect our operations and our future performance.
Many of these factors are beyond our control. We may not be able to generate
sufficient cash flow to pay the interest on our debt, and future working
capital, borrowings or equity financing may not be available to pay or refinance
such debt. Factors that will affect our ability to raise cash through an
offering of our capital stock or a refinancing of our debt include financial
market conditions, the value of our assets and our performance at the time we
need capital.
In addition, our bank borrowing base is subject to periodic
redeterminations. We could be forced to repay a portion of our bank borrowings
due to redeterminations of our borrowing base. If we are forced to do so, we may
not have sufficient funds to make such repayments. If we do not have sufficient
funds and are otherwise unable to negotiate renewals of our borrowings or
arrange new financing, we may have to sell significant assets. Any such sale
could have a material adverse effect on our business and financial results.
OUR INDUSTRY IS EXTREMELY COMPETITIVE.
The energy industry is extremely competitive. This is especially true
with regard to exploration for, and development and production of, new sources
of oil and natural gas. As an independent producer of oil and natural gas, we
frequently compete against companies that are larger and financially stronger in
acquiring properties suitable for exploration, in contracting for drilling
equipment and other services and in securing trained personnel.
OUR COMMODITY PRICE RISK MANAGEMENT ACTIVITIES MAY REDUCE THE REALIZED
PRICES RECEIVED FOR OUR OIL AND GAS SALES.
In order to manage our exposure to price volatility in marketing our
oil and gas, we enter into oil and gas price risk management arrangements for a
portion of our expected production. These transactions are limited in life.
While intended to reduce the effects of volatile oil and gas prices, commodity
price risk management transactions may limit the prices we actually realize and
we may experience reductions in oil and gas revenues from our commodity price
risk management activities in the future. In addition, our commodity price risk
management transactions may expose us to the risk of financial loss in certain
circumstances, including instances in which:
o our production is less than expected;
7
o there is a widening of price differentials between delivery
points for our production and the delivery point assumed in
the hedge arrangement; or
o the counterparties to our contracts fail to perform under the
contracts.
Some of our commodity price risk management arrangements require us to
deliver cash collateral or other assurances of performance to the counterparties
in the event that our payment obligations with respect to our commodity price
risk management transactions exceed certain levels. As of August 30, 2002, we
were required to post $12 million of collateral with one of our counterparties
through a letter of credit issued under our bank credit facility. Future
collateral requirements are uncertain and will depend on arrangements with our
counterparties and highly volatile natural gas and oil prices.
ESTIMATES OF OIL AND GAS RESERVES ARE UNCERTAIN AND INHERENTLY
IMPRECISE.
This prospectus and the documents incorporated by reference in this
prospectus contain estimates of our proved reserves and the estimated future net
revenues from our proved reserves. These estimates are based upon various
assumptions, including assumptions required by the SEC relating to oil and gas
prices, drilling and operating expenses, capital expenditures, taxes and
availability of funds. The process of estimating oil and gas reserves is
complex. The process involves significant decisions and assumptions in the
evaluation of available geological, geophysical, engineering and economic data
for each reservoir. Therefore, these estimates are inherently imprecise.
Actual future production, oil and gas prices, revenues, taxes,
development expenditures, operating expenses and quantities of recoverable oil
and gas reserves most likely will vary from these estimates. Such variations may
be significant and could materially affect the estimated quantities and present
value of our proved reserves. In addition, we may adjust estimates of proved
reserves to reflect production history, results of exploration and development
drilling, prevailing oil and gas prices and other factors, many of which are
beyond our control. Our properties may also be susceptible to hydrocarbon
drainage from production by operators on adjacent properties.
At December 31, 2001 approximately 29% by volume of our estimated
proved reserves were undeveloped. Recovery of undeveloped reserves requires
significant capital expenditures and successful drilling operations. The
estimates of these reserves include the assumption that we will make significant
capital expenditures to develop the reserves, including $224 million in 2002.
Although we have prepared estimates of our oil and gas reserves and the costs
associated with these reserves in accordance with industry standards, the
estimated costs may not be accurate, development may not occur as scheduled and
results may not be as estimated.
You should not assume that the present values referred to in the
documents incorporated by reference in this prospectus represent the current
market value of our estimated oil and gas reserves. In accordance with SEC
requirements, the estimates of our present values are based on prices and costs
as of the date of the estimates. The December 31, 2001 present value is based on
weighted average wellhead oil and gas prices of $18.82 per barrel of oil and
$2.51 per mcf of natural gas. Actual future prices and costs may be materially
higher or lower than the prices and costs as of the date of an estimate. A
change in price of $0.10 per mcf and $1.00 per barrel would result in a change
in our December 31, 2001 present value of proved reserves of approximately $82
million and $16 million, respectively.
Any changes in consumption by oil and gas purchasers or in governmental
regulations or taxation will also affect actual future net cash flows.
The timing of both the production and the expenses from the development
and production of oil and gas properties will affect both the timing of actual
future net cash flows from our proved reserves and their present value. In
addition, the 10% discount factor, which is required by the SEC to be used in
calculating discounted future net cash flows for reporting purposes, is not
necessarily the most accurate discount factor. The effective interest rate at
various times and the risks associated with our business or the oil and gas
industry in general will affect the accuracy of the 10% discount factor.
8
IF WE DO NOT MAKE SIGNIFICANT CAPITAL EXPENDITURES, WE MAY NOT BE ABLE
TO REPLACE RESERVES.
Our exploration, development and acquisition activities require
substantial capital expenditures. Historically, we have funded our capital
expenditures through a combination of cash flows from operations, our bank
credit facility and debt and equity issuances. Future cash flows are subject to
a number of variables, such as the level of production from existing wells,
prices of oil and gas, and our success in developing and producing new reserves.
If revenue were to decrease as a result of lower oil and gas prices or decreased
production, and our access to capital were limited, we would have a reduced
ability to replace our reserves. If our cash flow from operations is not
sufficient to fund our capital expenditure budget, there can be no assurance
that additional bank debt, debt or equity issuances or other methods of
financing will be available to meet these requirements.
OUR RECENT RESERVE ESTIMATES HAVE NOT BEEN REVIEWED BY INDEPENDENT
PETROLEUM ENGINEERS.
Our estimates of our proved reserves as of June 30, 2002 included in
this prospectus under the caption "Prospectus Summary" have not been reviewed or
reported on by independent petroleum engineers. These estimates were prepared by
our own engineers and professionals using criteria otherwise in compliance with
SEC rules. Oil and gas pricing can affect estimates of quantities of proved
reserves due to the impact of pricing on ultimate economic recovery. Estimates
prepared by independent engineers might be different than our internal
estimates.
IF WE ARE NOT ABLE TO REPLACE RESERVES, WE MAY NOT BE ABLE TO SUSTAIN
PRODUCTION.
Our future success depends largely upon our ability to find, develop or
acquire additional oil and gas reserves that are economically recoverable.
Unless we replace the reserves we produce through successful development,
exploration or acquisition, our proved reserves will decline over time. In
addition, approximately 29% of our total estimated proved reserves at December
31, 2001 were undeveloped. By their nature, undeveloped reserves are less
certain. Recovery of such reserves will require significant capital expenditures
and successful drilling operations. We cannot assure you that we can
successfully find and produce reserves economically in the future. In addition,
we may not be able to acquire proved reserves at acceptable costs.
ACQUISITIONS ARE SUBJECT TO THE UNCERTAINTIES OF EVALUATING RECOVERABLE
RESERVES AND POTENTIAL LIABILITIES.
Our recent growth is due in part to acquisitions of exploration and
production companies and producing properties. We expect acquisitions will also
contribute to our future growth. Successful acquisitions require an assessment
of a number of factors, many of which are beyond our control. These factors
include recoverable reserves, exploration potential, future oil and gas prices,
operating costs and potential environmental and other liabilities. Such
assessments are inexact and their accuracy is inherently uncertain. In
connection with our assessments, we perform a review of the acquired properties,
which we believe is generally consistent with industry practices. However, such
a review will not reveal all existing or potential problems. In addition, our
review may not permit us to become sufficiently familiar with the properties to
fully assess their deficiencies and capabilities. We do not inspect every well.
Even when we inspect a well, we do not always discover structural, subsurface
and environmental problems that may exist or arise.
We are generally not entitled to contractual indemnification for
preclosing liabilities, including environmental liabilities. Normally, we
acquire interests in properties on an "as is" basis with limited remedies for
breaches of representations and warranties. In addition, competition for
producing oil and gas properties is intense and many of our competitors have
financial and other resources that are substantially greater than those
available to us. Therefore, we may not be able to acquire oil and gas properties
that contain economically recoverable reserves or be able to complete such
acquisitions on acceptable terms.
Additionally, significant acquisitions can change the nature of our
operations and business depending upon the character of the acquired properties,
which may have substantially different operating and geological characteristics
or be in different geographic locations than our existing properties. While it
is our current intention to continue to concentrate on acquiring properties with
development and exploration potential located in the Mid-Continent region, there
can be no assurance that in the future we will not decide to pursue acquisitions
or properties located in other geographic regions. To the extent that such
acquired properties are substantially different than our existing properties,
our ability to efficiently realize the economic benefits of such transactions
may be limited.
9
FUTURE PRICE DECLINES MAY RESULT IN OUR WRITE-DOWN OF ASSET CARRYING
VALUES.
We utilize the full cost method of accounting for costs related to our
oil and gas properties. Under this method, all such costs (productive and
nonproductive) are capitalized and amortized on an aggregate basis over the
estimated lives of the properties using the units-of-production method. These
capitalized costs are subject to a ceiling test, however, which limits such
pooled costs to the aggregate of the present value of future net revenues
attributable to proved oil and gas reserves discounted at 10% plus the lower of
cost or market value of unproved properties. The full cost ceiling is evaluated
at the end of each quarter utilizing the prices for oil and gas at that date. A
significant decline in oil and gas prices from current levels, or other factors,
without other mitigating circumstances, could cause a future write-down of
capitalized costs and a non-cash charge against future earnings.
OIL AND GAS DRILLING AND PRODUCING OPERATIONS ARE HAZARDOUS AND EXPOSE
US TO ENVIRONMENTAL LIABILITIES.
Oil and gas operations are subject to many risks, including well
blowouts, cratering and explosions, pipe failure, fires, formations with
abnormal pressures, uncontrollable flows of oil, natural gas, brine or well
fluids, and other environmental hazards and risks. Our drilling operations
involve risks from high pressures and from mechanical difficulties such as stuck
pipes, collapsed casings and separated cables. If any of these risks occurs, we
could sustain substantial losses as a result of:
o injury or loss of life;
o severe damage to or destruction of property, natural resources
and equipment;
o pollution or other environmental damage;
o clean-up responsibilities;
o regulatory investigations and penalties; and
o suspension of operations.
Our liability for environmental hazards includes those created either
by the previous owners of properties that we purchase or lease or by acquired
companies prior to the date we acquire them. In accordance with industry
practice, we maintain insurance against some, but not all, of the risks
described above. We cannot assure you that our insurance will be adequate to
cover casualty losses or liabilities. Also, we cannot predict the continued
availability of insurance at premium levels that justify its purchase.
EXPLORATION AND DEVELOPMENT DRILLING MAY NOT RESULT IN COMMERCIALLY
PRODUCTIVE RESERVES.
We do not always encounter commercially productive reservoirs through
our drilling operations. The new wells we drill or participate in may not be
productive and we may not recover all or any portion of our investment in wells
we drill or participate in. The seismic data and other technologies we use do
not allow us to know conclusively prior to drilling a well that oil or gas is
present or may be produced economically. The cost of drilling, completing and
operating a well is often uncertain, and cost factors can adversely affect the
economics of a project. Our efforts will be unprofitable if we drill dry wells
or wells that are productive but do not produce enough reserves to return a
profit after drilling, operating and other costs. Further, our drilling
operations may be curtailed, delayed or canceled as a result of a variety of
factors, including:
o unexpected drilling conditions;
o title problems;
o pressure or irregularities in formations;
o equipment failures or accidents;
10
o adverse weather conditions;
o compliance with environmental and other governmental
requirements; and
o cost of, or shortages or delays in the availability of,
drilling rigs and equipment.
THE LOSS OF KEY PERSONNEL COULD ADVERSELY AFFECT OUR ABILITY TO
OPERATE.
We depend, and will continue to depend in the foreseeable future, on
the services of our officers and key employees with extensive experience and
expertise in evaluating and analyzing producing oil and gas properties and
drilling prospects, maximizing production from oil and gas properties and
marketing oil and gas production. Our ability to retain our officers and key
employees is important to our continued success and growth. The unexpected loss
of the services of one or more of these individuals could have a detrimental
effect on our business.
LOWER OIL AND GAS PRICES COULD NEGATIVELY IMPACT OUR ABILITY TO BORROW.
Our current bank credit facility limits our borrowings to a borrowing
base, $225 million as of the date of this prospectus. The borrowing base is
determined periodically at the discretion of a majority of the banks and is
based in part on oil and gas prices. Additionally, some of our indentures,
including the indenture under which the new notes will be issued, contain
covenants limiting our ability to incur indebtedness in addition to that
incurred under our bank credit facility. These indentures limit our ability to
incur additional indebtedness unless we meet one of two alternative tests. The
first alternative is based on a percentage of our adjusted consolidated net
tangible assets, which is determined using discounted future net revenues from
proved oil and gas reserves as of the end of each year. As of the date of this
prospectus, we cannot incur additional indebtedness under this first alternative
of the debt incurrence test other than the indebtedness we are permitted to
incur pursuant to our bank credit facility. The second alternative is based on
the ratio of our adjusted consolidated EBITDA to our adjusted consolidated
interest expense over a trailing twelve-month period. As of the date of this
prospectus, we are permitted to incur significant additional indebtedness under
this second alternative of the debt incurrence test. Lower oil and gas prices in
the future could reduce our adjusted consolidated EBITDA, as well as our
adjusted consolidated net tangible assets, and thus could reduce our ability to
incur additional indebtedness.
OUR OIL AND GAS MARKETING ACTIVITIES MAY EXPOSE US TO CLAIMS FROM
ROYALTY OWNERS.
In addition to marketing our own oil and gas production, our marketing
activities include marketing oil and gas production for working interest owners
and royalty owners in the wells that we operate. These activities include the
operation of gathering systems and the sale of oil and natural gas under various
arrangements. Recently, royalty owners have commenced litigation against a
number of companies in the oil and gas production business claiming that amounts
paid for production attributable to the royalty owners' interest violated the
terms of the applicable leases and state law, that deductions from the proceeds
of oil and gas production were unauthorized under the applicable leases and that
amounts received by upstream sellers should be used to compute the amounts paid
to the royalty owners. Some of this litigation was commenced as class action
suits including four class action suits filed against Chesapeake. As new cases
are decided and the law in this area continues to develop, our liability
relating to the marketing of oil and gas may increase.
RISKS RELATED TO THE EXCHANGE OFFER AND THE NEW NOTES
IF YOU DO NOT PROPERLY TENDER YOUR OUTSTANDING NOTES, YOU WILL CONTINUE TO HOLD
UNREGISTERED OUTSTANDING NOTES AND YOUR ABILITY TO TRANSFER OUTSTANDING NOTES
WILL BE ADVERSELY AFFECTED.
We will only issue new notes in exchange for outstanding notes that you
timely and properly tender. Therefore, you should allow sufficient time to
ensure timely delivery of the outstanding notes and you should carefully follow
the instructions on how to tender your outstanding notes. Neither we nor the
exchange agent is required to tell you of any defects or irregularities with
respect to your tender of outstanding notes.
11
If you do not exchange your outstanding notes for new notes pursuant to
the exchange offer, the outstanding notes you hold will continue to be subject
to the existing transfer restrictions. In general, you may not offer or sell the
outstanding notes except under an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. We do not
plan to register outstanding notes under the Securities Act unless our
registration rights agreement with the initial purchasers of the outstanding
notes requires us to do so. Further, if you continue to hold any outstanding
notes after the exchange offer is consummated, you may have trouble selling them
because there will be fewer notes outstanding.
IF AN ACTIVE TRADING MARKET DOES NOT DEVELOP FOR THE NEW NOTES, YOU MAY BE
UNABLE TO SELL THE NEW NOTES OR TO SELL THE NEW NOTES AT A PRICE THAT YOU DEEM
SUFFICIENT.
The new notes will be new securities for which there currently is no
established trading market. Although the initial purchasers of the outstanding
notes have informed us that they intend to make a market in the new notes after
the exchange offer, the initial purchasers may stop making a market at any time.
Finally, if a large number of holders of outstanding notes do not tender
outstanding notes or tender outstanding notes improperly, the limited amount of
new notes that would be issued and outstanding after we consummate the exchange
offer could adversely affect the development of a market for these new notes.
A GUARANTEE COULD BE VOIDED IF THE GUARANTOR FRAUDULENTLY TRANSFERRED
THE GUARANTEE AT THE TIME IT INCURRED THE INDEBTEDNESS, WHICH COULD RESULT IN
NOTEHOLDERS BEING ABLE TO RELY ON ONLY CHESAPEAKE TO SATISFY CLAIMS.
Under U.S. bankruptcy law and comparable provisions of state fraudulent
transfer laws, a guarantee can be voided, or claims under a guarantee may be
subordinated to all other debts of that guarantor if, among other things, the
guarantor, at the time it incurred the indebtedness evidenced by its guarantee:
o intended to hinder, delay or defraud any present or future
creditor or received less than reasonably equivalent value or
fair consideration for the incurrence of the guarantee;
o was insolvent or rendered insolvent by reason of such
incurrence;
o was engaged in a business or transaction for which the
guarantor's remaining assets constituted unreasonably small
capital; or
o intended to incur, or believed that it would incur, debts
beyond its ability to pay those debts as they mature.
In addition, any payment by that guarantor under a guarantee could be
voided and required to be returned to the guarantor or to a fund for the benefit
of the creditors of the guarantor.
The measures of insolvency for purposes of fraudulent transfer laws
vary depending upon the governing law. Generally, a guarantor would be
considered insolvent if:
o the sum of its debts, including contingent liabilities, was
greater than the fair saleable value of all of its assets;
o the present fair saleable value of its assets was less than
the amount that would be required to pay its probable
liability on its existing debts, including contingent
liabilities, as they became absolute and mature; or
o it could not pay its debts as they became due.
On the basis of historical financial information, recent operating
history and other factors, we believe that the subsidiary guarantees are being
incurred for proper purposes and in good faith and that each subsidiary
guarantor, after giving effect to its guarantee of the notes, will not be
insolvent, have unreasonably small capital for the business in which it is
engaged or have incurred debts beyond its ability to pay those debts as they
mature. We cannot be certain, however, that a court would agree with our
conclusions in this regard.
12
HOLDERS OF THE NEW NOTES WILL BE EFFECTIVELY SUBORDINATED TO ALL OF OUR
AND THE SUBSIDIARY GUARANTORS' SECURED INDEBTEDNESS AND TO ALL LIABILITIES OF
OUR NON-GUARANTOR SUBSIDIARIES.
Holders of our secured indebtedness, including the indebtedness under
our revolving bank credit facility, have claims with respect to our assets
constituting collateral for their indebtedness that are prior to your claims
under the new notes. In the event of a default on the new notes or our
bankruptcy, liquidation or reorganization, those assets would be available to
satisfy obligations with respect to the indebtedness secured thereby before any
payment could be made on the new notes. Accordingly, the secured indebtedness
would effectively be senior to the new notes to the extent of the value of the
collateral securing the indebtedness. While the indenture governing the new
notes places some limitations on our ability to create liens, there are
significant exceptions to these limitations, including with respect to sale and
leaseback transactions, that will allow us to secure some kinds of indebtedness
without equally and ratably securing the new notes. To the extent the value of
the collateral is not sufficient to satisfy the secured indebtedness, the
holders of that indebtedness would be entitled to share with the holders of the
new notes and the holders of other claims against us with respect to our other
assets.
In addition, the new notes are not guaranteed by all of our
subsidiaries, and our non-guarantor subsidiary is permitted to incur additional
indebtedness under the indenture. As a result, holders of the new notes will be
effectively subordinated to claims of third party creditors, including holders
of indebtedness, and preferred shareholders of this non-guarantor subsidiary.
Claims of those other creditors, including trade creditors, secured creditors,
authorities, holders of indebtedness or guarantees issued by this non-guarantor
subsidiary and preferred shareholders of the non-guarantor subsidiary, will
generally have priority as to the assets of the non-guarantor subsidiary over
our claims and equity interests. As a result, holders of our indebtedness,
including the holders of the new notes, will be effectively subordinated to all
those claims. As of June 30, 2002, after giving effect to this offering, our
non-guarantor subsidiary had no outstanding senior indebtedness.
13
EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
In connection with the issuance of the outstanding notes, we entered
into a registration rights agreement. Under the registration rights agreement,
we agreed to:
o within 60 days after the original issuance of the outstanding
notes on August 12, 2002, file a registration statement with
the SEC with respect to a registered offer to exchange each
outstanding note for a new note having terms substantially
identical in all material respects to such note except that
the new note will not contain terms with respect to transfer
restrictions;
o use our best efforts to cause the registration statement to be
declared effective under the Securities Act within 180 days
after the original issuance of the outstanding notes;
o promptly following the effectiveness of the registration
statement, offer the new notes in exchange for surrender of
the outstanding notes; and
o keep the exchange offer open for not less than 30 days (or
longer if required by applicable law) after the date notice of
the exchange offer is mailed to the holders of the outstanding
notes.
We have fulfilled the agreements described in the first two of the
preceding bullet points and are now offering eligible holders of the outstanding
notes the opportunity to exchange their outstanding notes for new notes
registered under the Securities Act. Holders are eligible if they are not
prohibited by any law or policy of the SEC from participating in this exchange
offer. The new notes will be substantially identical to the outstanding notes
except that the new notes will not contain terms with respect to transfer
restrictions, registration rights or additional interest.
Under limited circumstances, we agreed to use our best efforts to cause
the SEC to declare effective a shelf registration statement for the resale of
the outstanding notes. We also agreed to use our best efforts to keep the shelf
registration statement effective for up to two years after its effective date.
The circumstances include if:
o a change in law or in applicable interpretations thereof of
the staff of the SEC do not permit us to effect the exchange
offer; or
o for any other reason the exchange offer is not consummated
within 240 days from August 12, 2002, the date of the original
issuance of the outstanding notes; or
o any of the initial purchasers notifies us following
consummation of the exchange offer that outstanding notes held
by it are not eligible to be exchanged for new notes in the
exchange offer; or
o certain holders are prohibited by law or SEC policy from
participating in the exchange offer or may not resell the new
notes acquired by them in the exchange offer to the public
without delivering a prospectus and this prospectus is not
available for such resales.
We will pay additional cash interest on the applicable outstanding
notes, subject to certain exceptions:
o if the exchange offer registration statement is not filed with
the SEC on or before the 60th day after the original issuance
of the outstanding notes,
o if the exchange offer registration statement is not declared
effective by the SEC on or before the 180th day after the
original issuance of the outstanding notes,
o if the exchange offer is not consummated on or before the 60th
business day after this registration statement is declared
effective,
14
o if obligated to file a shelf registration statement, we fail
to file the shelf registration statement with the SEC on or
prior to the 30th day after the date on which the obligation
to file a shelf registration statement arises, which we refer
to as the shelf filing date,
o if obligated to file a shelf registration statement due to the
circumstances described in the first bullet point of the
preceding paragraph, the shelf registration statement is not
declared effective on or prior to the 180th day after the
original issuance of the outstanding notes,
o if we are obligated to file a shelf registration statement due
to the circumstances described in the second, third or fourth
bullet points of the preceding paragraph, the shelf
registration statement is not declared effective on or prior
to the 60th day after the shelf filing date, or
o after this registration statement or the shelf registration
statement, as the case may be, is declared effective, such
registration statement thereafter ceases to be effective or
usable (subject to certain exceptions) (each such event
referred to in the preceding clauses being a "registration
default");
from and including the date on which any such registration default occurs to but
excluding the date on which all registration defaults have been cured.
The rate of the additional interest will be 0.5% per year for the first
90-day period immediately following the occurrence of a registration default,
and such rate will increase by an additional 0.5% per year with respect to each
subsequent 90-day period until all registration defaults have been cured, up to
a maximum additional interest rate of 2.0% per year. We will pay such additional
interest on regular interest payment dates. Such additional interest will be in
addition to any other interest payable from time to time with respect to the
outstanding notes and the new notes.
Upon the effectiveness of this registration statement, the consummation
of the exchange offer, the effectiveness of a shelf registration statement, or
the effectiveness of a succeeding registration statement, as the case may be,
the interest rate borne by the notes from the date of such effectiveness or
consummation, as the case may be, will be reduced to the original interest rate.
However, if after any such reduction in interest rate, a different event
specified in the clauses above occurs, the interest rate may again be increased
pursuant to the preceding provisions.
To exchange your outstanding notes for transferable new notes in the
exchange offer, you will be required to make the following representations:
o any new notes will be acquired in the ordinary course of your
business;
o you have no arrangement or understanding with any person or
entity to participate in the distribution of the new notes;
o you are not engaged in and do not intend to engage in the
distribution of the new notes;
o if you are a broker-dealer that will receive new notes for
your own account in exchange for outstanding notes, you
acquired those notes as a result of market-making activities
or other trading activities and you will deliver a prospectus,
as required by law, in connection with any resale of such new
notes; and
o you are not our "affiliate," as defined in Rule 405 of the
Securities Act.
In addition, we may require you to provide information to be used in
connection with the shelf registration statement to have your outstanding notes
included in the shelf registration statement and benefit from the provisions
regarding additional interest described in the preceding paragraphs. A holder
who sells outstanding notes under the shelf registration statement generally
will be required to be named as a selling securityholder in the related
prospectus and to deliver a prospectus to purchasers. Such a holder will also be
subject to the civil liability provisions under the Securities Act in connection
with such sales and will be bound by the provisions of the registration rights
agreement that are applicable to such a holder, including indemnification
obligations.
15
The description of the registration rights agreement contained in this
section is a summary only. For more information, you should review the
provisions of the registration rights agreement that we filed with the SEC as an
exhibit to the registration statement of which this prospectus is a part.
RESALE OF NEW NOTES
Based on no action letters of the SEC staff issued to third parties, we
believe that new notes may be offered for resale, resold and otherwise
transferred by you without further compliance with the registration and
prospectus delivery provisions of the Securities Act if:
- you are not our "affiliate" within the meaning of Rule 405 under the
Securities Act;
- such new notes are acquired in the ordinary course of your business;
and
- you do not intend to participate in a distribution of the new notes.
The SEC, however, has not considered the exchange offer for the new notes
in the context of a no action letter, and the SEC may not make a similar
determination as in the no action letters issued to these third parties.
If you tender in the exchange offer with the intention of participating in
any manner in a distribution of the new notes, you
- cannot rely on such interpretations by the SEC staff; and
- must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary
resale transaction.
Unless an exemption from registration is otherwise available, any security
holder intending to distribute new notes should be covered by an effective
registration statement under the Securities Act. This registration statement
should contain the selling security holder's information required by Item 507 of
Regulation S-K under the Securities Act. This prospectus may be used for an
offer to resell, resale or other retransfer of new notes only as specifically
described in this prospectus. Only broker-dealers that acquired the outstanding
notes as a result of market-making activities or other trading activities may
participate in the exchange offer. Each broker-dealer that receives new notes
for its own account in exchange for outstanding notes, where such outstanding
notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge in the letter of
transmittal that it will deliver a prospectus in connection with any resale of
the new notes. Please read the section captioned "Plan of Distribution" for more
details regarding the transfer of new notes.
TERMS OF THE EXCHANGE OFFER
Subject to the terms and conditions described in this prospectus and in
the letter of transmittal, we will accept for exchange any outstanding notes
properly tendered and not withdrawn prior to 5:00 p.m. New York City time on the
expiration date. We will issue new notes in principal amount equal to the
principal amount of outstanding notes surrendered under the exchange offer.
Outstanding notes may be tendered only for new notes and only in integral
multiples of $1,000.
The exchange offer is not conditioned upon any minimum aggregate principal
amount of outstanding notes being tendered for exchange.
As of the date of this prospectus, $250,000,000 in aggregate principal
amount of the outstanding notes are outstanding. This prospectus and the letter
of transmittal are being sent to all registered holders of outstanding notes.
There will be no fixed record date for determining registered holders of
outstanding notes entitled to participate in the exchange offer.
16
We intend to conduct the exchange offer in accordance with the provisions
of the registration rights agreement, the applicable requirements of the
Securities Act and the Securities Exchange Act of 1934 and the rules and
regulations of the SEC. Outstanding notes that the holders thereof do not tender
for exchange in the exchange offer will remain outstanding and continue to
accrue interest. These outstanding notes will be entitled to the rights and
benefits such holders have under the indenture relating to the notes and the
registration rights agreement.
We will be deemed to have accepted for exchange properly tendered
outstanding notes when we have given oral or written notice of the acceptance to
the exchange agent and complied with the applicable provisions of the
registration rights agreement. The exchange agent will act as agent for the
tendering holders for the purposes of receiving the new notes from us.
If you tender outstanding notes in the exchange offer, you will not be
required to pay brokerage commissions or fees or, subject to the letter of
transmittal, transfer taxes with respect to the exchange of outstanding notes.
We will pay all charges and expenses, other than certain applicable taxes
described below, in connecting with the exchange offer. It is important that you
read the section labeled " -- Fees and Expenses" for more details regarding fees
and expenses incurred in the exchange offer.
We will return any outstanding notes that we do not accept for exchange
for any reason without expense to their tendering holder as promptly as
practicable after the expiration or termination of the exchange offer.
EXPIRATION DATE
The exchange offer will expire at 5:00 p.m. New York City time on
_________ 2002, unless, in our sole discretion, we extend it.
EXTENSIONS, DELAYS IN ACCEPTANCE, TERMINATION OR AMENDMENT
We expressly reserve the right, at any time or various times, to extend
the period of time during which the exchange offer is open. We may delay
acceptance of any outstanding notes by giving oral or written notice of such
extension to their holders. During any such extensions, all outstanding notes
previously tendered will remain subject to the exchange offer, and we may accept
them for exchange.
In order to extend the exchange offer, we will notify the exchange agent
orally or in writing of any extension. We will notify the registered holders of
outstanding notes of the extension no later than 9:00 a.m., New York City time,
on the business day after the previously scheduled expiration date.
If any of the conditions described below under " -- Conditions to the
Exchange Offer" have not been satisfied, we reserve the right, in our sole
discretion
- to delay accepting for exchange any outstanding notes,
- to extend the exchange offer, or
- to terminate the exchange offer,
by giving oral or written notice of such delay, extension or termination to the
exchange agent. Subject to the terms of the registration rights agreement, we
also reserve the right to amend the terms of the exchange offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
registered holders of outstanding notes. If we amend the exchange offer in a
manner that we determine to constitute a material change, we will promptly
disclose such amendment by means of a prospectus supplement. The supplement will
be distributed to the registered holders of the outstanding notes. Depending
upon the significance of the amendment and the manner of disclosure to the
registered holders, we will extend the exchange offer if the exchange offer
would otherwise expire during such period.
17
CONDITIONS TO THE EXCHANGE OFFER
We will not be required to accept for exchange, or exchange any new notes
for, any outstanding notes if the exchange offer, or the making of any exchange
by a holder of outstanding notes, would violate applicable law or any applicable
interpretation of the staff of the SEC. Similarly, we may terminate the exchange
offer as provided in this prospectus before accepting outstanding notes for
exchange in the event of such a potential violation.
In addition, we will not be obligated to accept for exchange the
outstanding notes of any holder that has not made to us the representations
described under " -- Purpose and Effect of the Exchange Offer," " -- Procedures
for Tendering" and "Plan of Distribution" and such other representations as may
be reasonably necessary under applicable SEC rules, regulations or
interpretations to allow us to use an appropriate form to register the new notes
under the Securities Act.
We expressly reserve the right to amend or terminate the exchange offer,
and to reject for exchange any outstanding notes not previously accepted for
exchange, upon the occurrence of any of the conditions to the exchange offer
specified above. We will give oral or written notice of any extension,
amendment, non-acceptance or termination to the holders of the outstanding notes
as promptly as practicable.
These conditions are for our sole benefit, and we may assert them or waive
them in whole or in part at any time or at various times in our sole discretion.
If we fail at any time to exercise any of these rights, this failure will not
mean that we have waived our rights. Each such right will be deemed an ongoing
right that we may assert at any time or at various times.
In addition, we will not accept for exchange any outstanding notes
tendered, and will not issue new notes in exchange for any such outstanding
notes, if at such time any stop order has been threatened or is in effect with
respect to the registration statement of which this prospectus constitutes a
part or the qualification of the indenture relating to the notes under the Trust
Indenture Act of 1939.
PROCEDURES FOR TENDERING
How to Tender Generally
Only a holder of outstanding notes may tender such outstanding notes in
the exchange offer. To tender in the exchange offer, a holder must:
- complete, sign and date the letter of transmittal, or a facsimile of
the letter of transmittal;
- have the signature on the letter of transmittal guaranteed if the
letter of transmittal so requires; and
- mail or deliver such letter of transmittal or facsimile to the
exchange agent prior to 5:00 p.m. New York City time on the
expiration date; or
- comply with the automated tender offer program procedures of
The Depository Trust Company, or DTC, described below.
In addition, either:
- the exchange agent must receive outstanding notes along with the
letter of transmittal;
- the exchange agent must receive, prior to 5:00 p.m. New York City
time on the expiration date, a timely confirmation of book-entry
transfer of such outstanding notes into the exchange agent's account
at DTC according to the procedure for book-entry transfer described
below or a properly transmitted agent's message; or
- the holder must comply with the guaranteed delivery procedures
described below.
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To be tendered effectively, the exchange agent must receive any physical
delivery of the letter of transmittal and other required documents at its
address indicated on the cover page of the letter of transmittal. The exchange
agent must receive such documents prior to 5:00 p.m. New York City time on the
expiration date.
The tender by a holder that is not withdrawn prior to 5:00 p.m. New York
City time on the expiration date will constitute an agreement between the holder
and us in accordance with the terms and subject to the conditions described in
this prospectus and in the letter of transmittal.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES, THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT YOUR ELECTION AND RISK.
RATHER THAN MAIL THESE ITEMS, WE RECOMMEND THAT YOU USE AN OVERNIGHT OR HAND
DELIVERY SERVICE. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO ASSURE
DELIVERY TO THE EXCHANGE AGENT BEFORE 5:00 P.M. NEW YORK CITY TIME ON THE
EXPIRATION DATE. YOU SHOULD NOT SEND THE LETTER OF TRANSMITTAL OR OUTSTANDING
NOTES TO US. YOU MAY REQUEST YOUR BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR OTHER NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR YOU.
How to Tender if You Are a Beneficial Owner
If you beneficially own outstanding notes that are registered in the name
of a broker, dealer, commercial bank, trust company or other nominee and you
wish to tender those notes, you should contact the registered holder promptly
and instruct it to tender on your behalf. If you are a beneficial owner and wish
to tender on your own behalf, you must, prior to completing and executing the
letter of transmittal and delivering your outstanding notes, either:
- make appropriate arrangements to register ownership of the
outstanding notes in your name; or
- obtain a properly completed bond power from the registered holder of
outstanding notes.
The transfer of registered ownership, if permitted under the indenture for
the notes, may take considerable time and may not be completed prior to the
expiration date.
Signatures and Signature Guarantees
You must have signatures on a letter of transmittal or a notice of
withdrawal (as described below) guaranteed by a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States, or an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Securities Exchange Act. In
addition, such entity must be a member of one of the recognized signature
guarantee programs identified in the letter of transmittal. Signature guarantees
are not required, however, if the notes are tendered:
- by a registered holder who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions"
on the letter of transmittal;
- for the account of a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or
correspondence in the United States, or an eligible guarantor
institution.
When You Need Endorsements or Bond Powers
If the letter of transmittal is signed by a person other than the
registered holder of any outstanding notes, the outstanding notes must be
endorsed or accompanied by a properly completed bond power. The bond power must
be signed by the registered holder as the registered holder's name appears on
the outstanding notes. A member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States, or an eligible guarantor institution must guarantee the signature on the
bond power.
19
If the letter of transmittal or any outstanding notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, those persons should so indicate when signing. Unless waived by us,
they should also submit evidence satisfactory to us of their authority to
deliver the letter of transmittal.
Tendering Through DTC's Automated Tender Offer Program
The exchange agent and DTC have confirmed that any financial institution
that is a participant in DTC's system may use DTC's automated tender offer
program to tender. Participants in the program may, instead of physically
completing and signing the letter of transmittal and delivering it to the
exchange agent, transmit their acceptance of the exchange offer electronically.
They may do so by causing DTC to transfer the outstanding notes to the exchange
agent in accordance with its procedures for transfer. DTC will then send an
agent's message to the exchange agent.
The term "agent's message" means a message transmitted by DTC, received by
the exchange agent and forming part of the book-entry confirmation, to the
effect that:
- DTC has received an express acknowledgment from a participant in its
automated tender offer program that is tendering outstanding notes
that are the subject of such book-entry confirmation;
- such participant has received and agrees to be bound by the terms of
the letter of transmittal or, in the case of an agent's message
relating to guaranteed delivery, that such participant has received
and agrees to be bound by the applicable notice of guaranteed
delivery; and
- the agreement may be enforced against such participant.
Determinations Under the Exchange Offer
We will determine in our sole discretion all questions as to the validity,
form, eligibility, time of receipt, acceptance of tendered outstanding notes and
withdrawal of tendered outstanding notes. Our determination will be final and
binding. We reserve the absolute right to reject any outstanding notes not
properly tendered or any outstanding notes our acceptance of which would, in the
opinion of our counsel, be unlawful. We also reserve the right to waive any
defect, irregularities or conditions of tender as to particular outstanding
notes. Our interpretation of the terms and conditions of the exchange offer,
including the instructions in the letter of transmittal, will be final and
binding on all parties. Unless waived, all defects or irregularities in
connection with tenders of outstanding notes must be cured within such time as
we shall determine. Although we intend to notify holders of defects or
irregularities with respect to tenders of outstanding notes, neither we, the
exchange agent nor any other person will incur any liability for failure to give
such notification. Tenders of outstanding notes will not be deemed made until
such defects or irregularities have been cured or waived. Any outstanding notes
received by the exchange agent that are not properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned to
the tendering holder, unless otherwise provided in the letter of transmittal, as
soon as practicable following the expiration date.
When We Will Issue New Notes
In all cases, we will issue new notes for outstanding notes that we have
accepted for exchange under the exchange offer only after the exchange agent
timely receives:
- outstanding notes or a timely book-entry confirmation of such
outstanding notes into the exchange agent's account at DTC; and
- a properly completed and duly executed letter of transmittal and all
other required documents or a properly transmitted agent's message.
20
Return of Outstanding Notes Not Accepted or Exchanged
If we do not accept any tendered outstanding notes for exchange or if
outstanding notes are submitted for a greater principal amount than the holder
desires to exchange, the unaccepted or non-exchanged outstanding notes will be
returned without expense to their tendering holder. In the case of outstanding
notes tendered by book-entry transfer in the exchange agent's account at DTC
according to the procedures described below, such non-exchanged outstanding
notes will be credited to an account maintained with DTC. These actions will
occur as promptly as practicable after the expiration or termination of the
exchange offer.
Your Representations to Us
By signing or agreeing to be bound by the letter of transmittal, you will
represent to us that, among other things:
- any new notes that you receive will be acquired in the ordinary
course of your business;
- you have no arrangement or understanding with any person or entity
to participate in the distribution of the new notes;
- you are not engaged in and do not intend to engage in the
distribution of the new notes;
- if you are a broker-dealer that will receive new notes for your own
account in exchange for outstanding notes, you acquired those notes
as a result of market-making activities or other trading activities
and you will deliver a prospectus, as required by law, in connection
with any resale of such new notes; and
- you are not our "affiliate," as defined in Rule 405 of the
Securities Act.
BOOK-ENTRY TRANSFER
The exchange agent will establish an account with respect to the
outstanding notes at DTC for purposes of the exchange offer promptly after the
date of this prospectus. Any financial institution participating in DTC's system
may make book-entry delivery of outstanding notes by causing DTC to transfer
such outstanding notes into the exchange agent's account at DTC in accordance
with DTC's procedures for transfer. Holders of outstanding notes who are unable
to deliver confirmation of the book-entry tender of their outstanding notes into
the exchange agent's account at DTC or all other documents required by the
letter of transmittal to the exchange agent on or prior to 5:00 p.m. New York
City time on the expiration date must tender their outstanding notes according
to the guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
If you wish to tender your outstanding notes but your outstanding notes
are not immediately available or you cannot deliver your outstanding notes, the
letter of transmittal or any other required documents to the exchange agent or
comply with the applicable procedures under DTC's automated tender offer program
prior to the expiration date, you may tender if:
- the tender is made through a member firm of a registered national
securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office
or correspondent in the United States, or an eligible guarantor
institution,
- prior to the expiration date, the exchange agent receives from such
member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc., commercial bank or
trust company having an office or correspondent in the United
States, or eligible guarantor institution either a properly
completed and duly executed notice of guaranteed delivery by
facsimile transmission, mail or hand delivery or a properly
transmitted agent's message and notice of guaranteed delivery:
21
- setting forth your name and address, the registered number(s)
of your outstanding notes and the principal amount of
outstanding notes tendered,
- stating that the tender is being made thereby, and
- guaranteeing that, within three (3) New York Stock Exchange
("NYSE") trading days after the expiration date, the letter of
transmittal or facsimile thereof, together with the
outstanding notes or a book-entry confirmation, and any other
documents required by the letter of transmittal will be
deposited by the eligible guarantor institution with the
exchange agent, and
- the exchange agent receives such properly completed and executed
letter of transmittal or facsimile thereof, as well as all tendered
outstanding notes in proper form for transfer or a book-entry
confirmation, and all other documents required by the letter of
transmittal, within three (3) NYSE trading days after the expiration
date.
Upon request to the exchange agent, a notice of guaranteed delivery will
be sent you if you wish to tender your outstanding notes according to the
guaranteed delivery procedures described above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, you may withdraw your
tender at any time prior to 5:00 p.m. New York City time on the expiration date.
For a withdrawal to be effective:
- the exchange agent must receive a written notice of withdrawal at
the address indicated on the cover page of the letter of transmittal
or
- you must comply with the appropriate procedures of DTC's automated
tender offer program system.
Any notice of withdrawal must:
- specify the name of the person who tendered the outstanding notes to
be withdrawn, and
- identify the outstanding notes to be withdrawn, including the
principal amount of such outstanding notes.
If outstanding notes have been tendered under the procedure for book-entry
transfer described above, any notice of withdrawal must specify the name and
number of the account at DTC to be credited with withdrawn outstanding notes and
otherwise comply with the procedures of DTC.
We will determine all questions as to the validity, form, eligibility and
time of receipt of notice of withdrawal. Our determination shall be final and
binding on all parties. We will deem any outstanding notes so withdrawn not to
have been validly tendered for exchange for purposes of the exchange offer.
Any outstanding notes that have been tendered for exchange but that are
not exchanged for any reason will be returned to their holder without cost to
the holder. In the case of outstanding notes tendered by book-entry transfer
into the exchange agent's account at DTC according to the procedures described
above, such outstanding notes will be credited to an account maintained with DTC
for the outstanding notes. This return or crediting will take place as soon as
practicable after withdrawal, rejection of tender or termination of the exchange
offer. You may retender properly withdrawn outstanding notes by following one of
the procedures described under " -- Procedures for Tendering" above at any time
on or prior to the expiration date.
22
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal
solicitation is being made by mail; however, we may make additional solicitation
by telegraph, telephone or in person by our officers and regular employees and
those of our affiliates.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to broker-dealers or others soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and reimburse it for its related
reasonable out-of-pocket expenses.
We will pay the cash expenses to be incurred in connection with the
exchange offer. They include:
- SEC registration fees;
- fees and expenses of the exchange agent and trustee;
- accounting and legal fees and printing costs; and
- related fees and expenses.
TRANSFER TAXES
We will pay all transfer taxes, if any, applicable to the exchange of
outstanding notes under the exchange offer. The tendering holder, however, will
be required to pay any transfer taxes, whether imposed on the registered holder
or any other person, if:
- certificates representing outstanding notes for principal amounts
not tendered or accepted for exchange are to be delivered to, or are
to be issued in the name of, any person other than the registered
holder of outstanding notes tendered;
- tendered outstanding notes are registered in the name of any person
other than the person signing the letter of transmittal; or
- a transfer tax is imposed for any reason other than the exchange of
outstanding notes under the exchange offer.
If satisfactory evidence of payment of any transfer taxes payable by a
note holder is not submitted with the letter of transmittal, the amount of such
transfer taxes will be billed directly to that tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
If you do not exchange new notes for your outstanding notes under the
exchange offer, you will remain subject to the existing restrictions on transfer
of the outstanding notes. In general, you may not offer or sell the outstanding
notes unless they are registered under the Securities Act, or if the offer or
sale is exempt from the registration under the Securities Act and applicable
state securities laws. Except as required by the registration rights agreement,
we do not intend to register resales of the outstanding notes under the
Securities Act.
ACCOUNTING TREATMENT
We will record the new notes in our accounting records at the same
carrying value as the outstanding notes. This carrying value is the aggregate
principal amount of the outstanding notes less any bond discount, as reflected
in our accounting records on the date of exchange. Accordingly, we will not
recognize any gain or loss for accounting purposes in connection with the
exchange offer.
23
OTHER
Participation in the exchange offer is voluntary, and you should carefully
consider whether to accept. You are urged to consult your financial and tax
advisors in making your own decision on what action to take.
We may in the future seek to acquire untendered outstanding notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. We have no present plans to acquire any outstanding notes that are
not tendered in the exchange offer or to file a registration statement to permit
resales of any untendered outstanding notes.
24
RATIOS OF EARNINGS TO FIXED CHARGES
For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as net income (loss) before income taxes, extraordinary
items, amortization of capitalized interest and fixed charges, less capitalized
interest. Fixed charges consist of interest (whether expensed or capitalized),
and amortization of debt expenses and discount or premium relating to any
indebtedness.
SIX MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED
JUNE 30, DECEMBER 31, YEAR ENDED DECEMBER 31, JUNE 30,
---------- ------------ ---------------------------------- ----------
1997 1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ---- ----
Ratio of earnings to fixed
charges..................... (a) (b) (c) 1.4x 3.1x 5.1x (d)
- ------------
(a) Earnings for such year were insufficient to cover fixed charges by
approximately $185 million.
(b) Earnings for such six month period were insufficient to cover fixed
charges by approximately $32 million.
(c) Earnings for such year were insufficient to cover fixed charges by
approximately $915 million.
(d) Earnings for such six month period were insufficient to cover fixed
charges by approximately $6 million.
USE OF PROCEEDS
The exchange offer is intended to satisfy our obligations under the
registration rights agreement. We will not receive any cash proceeds from the
issuance of the new notes in the exchange offer. In consideration for issuing
the new notes as contemplated by this prospectus, we will receive outstanding
notes in a like principal amount. The form and terms of the new notes are
identical in all respects to the form and terms of the outstanding notes, except
the new notes do not include certain transfer restrictions. Outstanding notes
surrendered in exchange for the new notes will be retired and cancelled and will
not be reissued. Accordingly, the issuance of the new notes will not result in
any change in our outstanding indebtedness.
25
DESCRIPTION OF THE NEW NOTES
The new notes will be issued, and the outstanding notes were issued,
pursuant to an indenture dated as of August 12, 2002 (the "Indenture") among the
Company, as issuer, the Subsidiary Guarantors, as guarantors, and The Bank of
New York, as trustee (the "Trustee"). The terms of the new notes include those
stated in the Indenture and those made part of the Indenture by the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The definitions
of certain capitalized terms used in the following summary are set forth below
under " -- Certain Definitions." References to the "Notes" in this section of
the prospectus include both the outstanding notes and the new notes.
The following description is a summary of the material provisions of the
Indenture. It does not restate that agreement in its entirety. The Company urges
Holders to read the Indenture because it, and not this description, defines the
rights of Holders of these notes. The Company has filed the Indenture as an
exhibit to the registration statement which includes this prospectus.
If the exchange offer contemplated by this prospectus (the "Exchange
Offer") is consummated, Holders of outstanding notes who do not exchange those
notes for new notes in the Exchange Offer will vote together with Holders of new
notes for all relevant purposes under the Indenture. In that regard, the
Indenture requires that certain actions by the Holders thereunder (including
acceleration following an Event of Default) must be taken, and certain rights
must be exercised, by specified minimum percentages of the aggregate principal
amount of the outstanding securities issued under the Indenture. In determining
whether Holders of the requisite percentage in principal amount have given any
notice, consent or waiver or taken any other action permitted under the
Indenture, any outstanding notes that remain outstanding after the Exchange
Offer will be aggregated with the new notes, and the Holders of such outstanding
notes and the new notes will vote together as a single series for all such
purposes. Accordingly, all references herein to specified percentages in
aggregate principal amount of the notes outstanding shall be deemed to mean, at
any time after the Exchange Offer is consummated, such percentages in aggregate
principal amount of the outstanding notes and the new notes then outstanding.
BRIEF DESCRIPTION OF THE NOTES
The notes:
- are unsecured senior indebtedness of the Company;
- are unlimited in aggregate principal amount, of which $250,000,000
are outstanding;
- are senior in right of payment to all future Subordinated
Indebtedness of the Company; and
- rank equally in right of payment with all existing and future Senior
Indebtedness.
The new notes will be issued, and the outstanding notes were issued, only
in registered form, without coupons, in denominations of $1,000 and integral
multiples thereof.
Any outstanding notes that remain outstanding after the completion of the
Exchange Offer, together with the new notes issued in connection with the
Exchange Offer, will be treated as a single class of securities under the
Indenture.
The Company may issue the notes from time to time with an unlimited
maximum aggregate principal amount, of which $250 million were issued on August
12, 2002. Any notes originally issued after the date of original issuance of the
outstanding notes (the "Add On Notes") will be subject to the debt incurrence
covenant described in the first paragraph of " -- Certain Covenants --
Limitations on Incurrence of Additional Indebtedness." Any Add On Notes that are
actually issued will be treated as issued and outstanding notes (as the same
class as the notes) for all purposes of the Indenture and this "Description of
the New Notes," unless the context indicates otherwise.
26
Each note will mature on August 15, 2012 and will bear interest at the
rate of interest per annum indicated on the cover page of this prospectus.
Interest on the new notes will accrue from the date of original issuance
of the outstanding notes, August 12, 2002, and will be payable semiannually in
arrears on February 15 and August 15 of each year, commencing February 15, 2003.
We will make each interest payment to the holders of record of the notes at the
close of business on the February 1 or August 1 preceding such interest payment
date. Interest will be computed on the basis of a 360-day year of twelve 30-day
months. Principal, premium, if any, and interest will be payable at the offices
of the Trustee and the Paying Agent, provided that, at the option of the
Company, payment of interest on notes not in global form may be made by check
mailed to the address of the Person entitled thereto as it appears in the
register of the notes maintained by the Registrar. Initially, the Trustee will
also act as Paying Agent and Registrar for the notes.
GUARANTEES
All the existing subsidiaries of the Company, other than Chesapeake Energy
Marketing, Inc., will fully and unconditionally guarantee, on a joint and
several basis, the Company's obligations to pay principal of, premium, if any,
and interest on the new notes. Each Person that becomes a Restricted Subsidiary
after the Issue Date will guarantee the payment of the Notes.
The obligations of each Subsidiary Guarantor under its Guarantee will be
limited as necessary to prevent that Guarantee from constituting a fraudulent
conveyance or fraudulent transfer under federal, state or foreign law. Each
Subsidiary Guarantor that makes a payment or distribution under a Guarantee
shall be entitled to a contribution from each other Subsidiary Guarantor in a
pro rata amount based on the respective net assets of each Subsidiary Guarantor
at the time of such payment determined in accordance with GAAP.
If a Guarantee were rendered voidable, it could be subordinated by a court
to all other indebtedness (including guarantees and other contingent
liabilities) of the applicable Subsidiary Guarantor, and, depending on the
amount of such indebtedness, a Subsidiary Guarantor's liability on its Guarantee
could be reduced to zero. Please read "Risk Factors -- Risks Related to the
Exchange Offer and the New Notes -- A guarantee could be voided if the guarantor
fraudulently transferred the guarantee at the time it incurred the indebtedness,
which could result in noteholders being able to rely on only Chesapeake to
satisfy claims."
Subject to the next succeeding paragraph, no Subsidiary Guarantor may
consolidate or merge with or into (whether or not such Subsidiary Guarantor is
the surviving Person) another Person unless:
(1) the Person formed by or surviving any such consolidation or
merger (if other than such Subsidiary Guarantor) assumes all the
obligations of such Subsidiary Guarantor under the Indenture and the Notes
pursuant to a supplemental indenture, in a form reasonably satisfactory to
the Trustee,
(2) immediately after such transaction, no Default or Event of
Default exists,
(3) such Subsidiary Guarantor or the Person formed by or surviving
any such consolidation or merger will have Consolidated Tangible Net Worth
immediately after the transaction equal to or greater than the
Consolidated Tangible Net Worth of such Subsidiary Guarantor immediately
preceding the transaction and
(4) the Company will, at the time of such transaction after giving
pro forma effect thereto as if such transaction had occurred at the
beginning of the Reference Period, be permitted to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to
the " -- Limitation on Incurrence of Additional Indebtedness" covenant.
The preceding does not prohibit a merger between Subsidiary Guarantors or a
merger between the Company and a Subsidiary Guarantor.
In the event of a sale or other disposition of all or substantially all of
the assets of any Subsidiary Guarantor, or a sale or other disposition of all
the Capital Stock of such Subsidiary Guarantor, in any case whether by way of
merger, consolidation or otherwise, or a Subsidiary Guarantor otherwise ceases
to be a Subsidiary Guarantor, then
27
the Person acquiring the assets (in the event of a sale or other disposition, by
way of such a merger, consolidation or otherwise, of all or substantially all of
the assets of such Subsidiary Guarantor) or such Subsidiary Guarantor (in any
other event) will be released and relieved of any obligations under its
Guarantee.
RANKING
Senior Indebtedness versus New Notes. The Indebtedness evidenced by the
new notes and the Guarantees will be unsecured and will rank pari passu in right
of payment to all Senior Indebtedness of the Company and the Subsidiary
Guarantors, as the case may be.
As of August 30, 2002 after the issuance of the original notes, Senior
Indebtedness of the Company and the Subsidiary Guarantors was approximately
$1,550 million, none of which was secured indebtedness.
The new notes will be unsecured obligations of the Company. Secured debt
and other secured obligations of the Company and the Subsidiary Guarantors
(including obligations with respect to our current bank credit facility) will be
effectively senior to the new notes to the extent of the value of the assets
securing such debt or other obligations.
Liabilities of Subsidiaries versus New Notes. A substantial portion of the
Company's operations is conducted through its subsidiaries. Claims of creditors
of such subsidiaries that are not Subsidiary Guarantors, including trade
creditors and creditors holding indebtedness or guarantees issued by such
subsidiaries, and claims of preferred stockholders of such subsidiaries will
have priority with respect to the assets and earnings of such subsidiaries over
the claims of the Company's creditors, including holders of the new notes.
Accordingly, the new notes will be effectively subordinated to creditors
(including trade creditors) and preferred stockholders, if any, of the Company's
subsidiaries that are not Subsidiary Guarantors. All of the Company's
subsidiaries, other than Chesapeake Energy Marketing, Inc., will be Subsidiary
Guarantors. As of the date of this prospectus, the non-guarantor subsidiary has
no outstanding indebtedness.
Although the Indenture limits the incurrence of Indebtedness (including
preferred stock) of the Restricted Subsidiaries, such limitations are subject to
a number of significant qualifications. In addition, the Indenture does not
impose any limitations on the incurrence by the Restricted Subsidiaries of
liabilities that are not considered Indebtedness under the Indenture. Please
read " -- Certain Covenants -- Limitation on Incurrence of Additional
Indebtedness." Moreover, the Indenture does not impose any limitation on the
incurrence by any Unrestricted Subsidiary of Indebtedness (including preferred
stock).
OPTIONAL REDEMPTION
At any time on or after August 15, 2007, the Company may, at its option,
redeem all or any portion of the Notes at the applicable redemption prices
(expressed as percentages of the principal amount of the Notes) described below,
plus, in each case, accrued but unpaid interest thereon to the applicable
redemption date if the Notes are redeemed during the twelve-month period
beginning on August 15 of the years set forth below:
REDEMPTION
YEAR PRICE
- ---------------------- ----------
2007.................. 104.5%
2008.................. 103.0%
2009.................. 101.5%
2010 and thereafter... 100.0%
Notwithstanding the foregoing, at any time prior to August 15, 2007, the
Company may, at its option, redeem all or any portion of the Notes at the
Make-Whole Price plus accrued and unpaid interest to the date of redemption. In
addition, in the event the Company consummates one or more Equity Offerings on
or prior to August 15, 2005, the Company, at its option, may redeem up to 35% of
the aggregate principal amount of the Notes (which includes Add On Notes, if
any) issued under the Indenture with all or a portion of the aggregate net
proceeds received by the Company from such Equity Offerings at a redemption
price of 109%, plus accrued and unpaid interest thereon to the redemption date;
provided, however, that
28
- the date of such redemption occurs within the 90-day period after
the Equity Offering in respect of which such redemption is made and
- following each such redemption, at least 65% of the aggregate
principal amount of the Notes (which includes Add On Notes, if any)
issued under the Indenture remain outstanding.
CHANGE OF CONTROL
Following the occurrence of any Change of Control, the Company must offer
to purchase all outstanding Notes at a purchase price equal to 101% of the
aggregate principal amount of the Notes, plus accrued and unpaid interest to the
date of purchase.
Within 15 days after any Change of Control, the Company will mail or cause
to be mailed to all Holders on the date of the Change of Control a Notice (the
"Change of Control Notice") of the occurrence of such Change of Control and of
the Holders' rights arising as a result thereof. The Change of Control Notice
shall state, among other things:
(1) that the change of control offer is being made pursuant to this
covenant;
(2) the purchase price and the change of control payment date;
(3) that any Note not tendered will continue to accrue interest;
(4) that any Note accepted for payment pursuant to the change of
control offer shall cease to accrue interest on the change of control
payment date; and
(5) the instructions, consistent with the covenant described
hereunder, that a Holder must follow in order to have such Holder's Notes
purchased.
The change of control offer will be deemed to have commenced upon mailing
of a notice pursuant to the Indenture and will terminate 20 business days after
its commencement, unless a longer offering period is required by law. Promptly
after the termination of the change of control offer, the Company will purchase
and mail or deliver payment for all Notes tendered in response to the change of
control offer.
On the change of control payment date, the Company will, to the extent
lawful,
- accept for payment Notes or portions thereof tendered pursuant to
the change of control offer,
- deposit with the paying agent an amount equal to the change of
control payment in respect of all Notes or portions thereof so
tendered and
- deliver to the Trustee the Notes so accepted together with an
officers' certificate stating the Notes or portions thereof tendered
to the Company.
The paying agent will promptly mail or deliver to each Holder of Notes so
accepted payment in an amount equal to the purchase price for such Notes, and
the Trustee will promptly authenticate and mail or deliver to each Holder a new
Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any, provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof.
The Company will comply with Section 14 of the Exchange Act and the
provisions of Regulation 14E and any other tender offer rules under the Exchange
Act and any other federal and state securities laws, rules and regulations which
may then be applicable to any change of control offer.
The Change of Control purchase feature of the Notes may in certain
circumstances make more difficult or discourage a sale or takeover of the
Company. The change of control purchase feature is a result of negotiations
between the Company and the initial purchasers. The Company has no present
intention to engage in a transaction
29
involving a Change of Control, although it is possible that it could decide to
do so in the future. Subject to the limitations discussed below, the Company
could, in the future, enter into certain transactions, including acquisitions,
refinancings or other recapitalizations, that would not constitute a Change of
Control under the Indenture, but that could increase the amount of indebtedness
outstanding at such time or otherwise affect the Company's capital structure or
credit ratings. Restrictions on the Company's ability to incur additional
Indebtedness are contained in the covenants described under " -- Certain
Covenants -- Limitation on Incurrence of Additional Indebtedness," " --
Limitation on Liens" and " -- Limitation on Sale/Leaseback Transactions." Under
the Indenture, such restrictions can only be waived with the consent of the
Holders of a majority in principal amount of the Notes then outstanding. Except
for the limitations contained in such covenants, however, the Indenture does not
contain any covenants or provisions that may afford Holders of the Notes
protection in the event of a highly leveraged transaction.
Future indebtedness that the Company may incur may contain prohibitions on
the occurrence of certain events that would constitute a Change of Control or
require the repurchase of such indebtedness upon a Change of Control. Moreover,
the exercise by the Holders of their right to require the Company to repurchase
the Notes could cause a default under such indebtedness, even if the Change of
Control itself does not, due to the financial effect of such repurchase on the
Company. Finally, the Company's ability to pay cash to the Holders of Notes
following the occurrence of a Change of Control may be limited by the Company's
then existing financial resources. There can be no assurance that sufficient
funds will be available when necessary to make any required repurchases.
The provisions under the Indenture relative to the Company's obligation to
make an offer to repurchase the Notes as a result of a Change of Control may be
waived or modified with the written consent of the Holders of a majority in
principal amount of the Notes.
CERTAIN COVENANTS
The following restrictive covenants are applicable to the Company and its
Restricted Subsidiaries.
Limitation on Incurrence of Additional Indebtedness. The Company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, issue, incur, assume, guarantee, become liable, contingently or
otherwise, with respect to or otherwise become responsible for the payment of
(collectively, "incur") any Indebtedness; provided, however, that if no Default
or Event of Default shall have occurred and be continuing at the time or as a
consequence of the incurrence of such Indebtedness, the Company or its
Restricted Subsidiaries may incur Indebtedness if, on a pro forma basis, after
giving effect to such incurrence and the application of the proceeds therefrom,
either of the following tests shall have been satisfied: (1) the Adjusted
Consolidated EBITDA Coverage Ratio would have been at least 2.25 to 1.0 or (2)
Adjusted Consolidated Net Tangible Assets would have been greater than 200% of
Indebtedness of the Company and its Restricted Subsidiaries.
Notwithstanding the preceding, if no Default or Event of Default shall
have occurred and be continuing at the time or as a consequence of the
incurrence of such Indebtedness, the Company and its Restricted Subsidiaries may
incur Permitted Indebtedness. For purposes of determining compliance with this
covenant:
(1) in the event that an item of proposed Indebtedness meets the
criteria of more than one of the categories of Permitted Indebtedness as
of the date of incurrence thereof or is entitled to be incurred pursuant
to the first paragraph of this covenant as of the date of incurrence
thereof, the Company shall, in its sole discretion, classify (or later
classify in whole or in part, in its sole discretion) such item of
Indebtedness in any manner that complies with this covenant; and
(2) for purposes of determining compliance with any
dollar-denominated restriction on the incurrence of Indebtedness
denominated in a foreign currency, the dollar-equivalent principal amount
of such Indebtedness incurred pursuant thereto shall be calculated based
on the relevant currency.
Accrual of interest or dividends, the accretion of accreted value or liquidation
preference and the payment of interest or dividends in the form of additional
Indebtedness will not be deemed to be an incurrence of Indebtedness for purposes
of this covenant.
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Any Indebtedness of a Person existing at the time such Person becomes a
Restricted Subsidiary (whether by merger, consolidation, acquisition or
otherwise) shall be deemed to be incurred by such Restricted Subsidiary at the
time it becomes a Restricted Subsidiary.
Limitation on Restricted Payments. The Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, make any
Restricted Payment, unless:
(1) no Default or Event of Default shall have occurred and be
continuing at the time of or immediately after giving effect to such
Restricted Payment;
(2) at the time of and immediately after giving effect to such
Restricted Payment, the Company would be able to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to
the first paragraph of the covenant captioned " -- Limitation on
Incurrence of Additional Indebtedness"; and
(3) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after the Reference
Date does not exceed the sum of
(A) 50% of the Consolidated Net Income of the Company and its
Restricted Subsidiaries (or in the event such Consolidated Net Income
shall be a deficit, minus 100% of such deficit) during the period (treated
as one accounting period) subsequent to the Reference Date and ending on
the last day of the fiscal quarter immediately preceding the date of such
Restricted Payment;
(B) the aggregate Net Cash Proceeds, and the fair market value of
property other than cash (as determined in good faith by the Company's
Board of Directors and evidenced by a resolution of such Board), received
by the Company during such period from any Person other than a Subsidiary
of the Company as a result of the issuance or sale of Capital Stock of the
Company (other than any Disqualified Stock and other than Preferred Stock
issued in the Preferred Stock Offering), other than in connection with the
conversion of Indebtedness or Disqualified Stock;
(C) the aggregate Net Cash Proceeds, and the fair market value of
property other than cash (as determined in good faith by the Company's
Board of Directors and evidenced by a resolution of such Board), received
by the Company during such period from any Person other than a Subsidiary
of the Company as a result of the issuance or sale of any Indebtedness or
Disqualified Stock to the extent that at the time the determination is
made such Indebtedness or Disqualified Stock, as the case may be, has been
converted into or exchanged for Capital Stock of the Company (other than
Disqualified Stock); and
(D) (i) in case any Unrestricted Subsidiary has been redesignated a
Restricted Subsidiary, an amount equal to the lesser of (x) the book value
(determined in accordance with GAAP) at the date of such redesignation of
the aggregate Investments made by the Company and its Restricted
Subsidiaries in such Unrestricted Subsidiary and (y) the fair market value
of such Investments in such Unrestricted Subsidiary at the time of such
redesignation (determined in good faith by the Company's Board of
Directors, including a majority of the Company's Disinterested Directors,
whose determination shall be conclusive and evidenced by a resolution of
such Board); or (ii) in case any Restricted Subsidiary has been
redesignated an Unrestricted Subsidiary, minus the greater of (x) the book
value (determined in accordance with GAAP) at the date of redesignation of
the aggregate Investments made by the Company and its Restricted
Subsidiaries in such Restricted Subsidiary and (y) the fair market value
of such Investments in such Restricted Subsidiary at the time of such
redesignation (determined in good faith by the Company's Board of
Directors, including a majority of the Company's Disinterested Directors,
whose determination shall be conclusive and evidenced by a resolution of
such Board).
Notwithstanding the preceding, the above limitations will not prevent:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment complied
with the provisions hereof;
31
(2) the purchase, redemption, acquisition or retirement of any
shares of Capital Stock of the Company in exchange for, or out of the net
proceeds of the substantially concurrent sale (other than to a Restricted
Subsidiary of the Company) of, other shares of Capital Stock (other than
Disqualified Stock) of the Company;
(3) any dividend or other distribution payable from a Restricted
Subsidiary to the Company or any other Restricted Subsidiary;
(4) regular quarterly dividends on the 6.75% Cumulative Convertible
Preferred Stock of the Company outstanding on the Issue Date, provided
that no Default or Event of Default shall have occurred and be continuing
at the time of or immediately after giving effect to any such Restricted
Payment; and
(5) other Restricted Payments not in excess of $25 million in the
aggregate since the Issue Date, provided that no Default or Event of
Default shall have occurred and be continuing at the time of or
immediately after giving effect to any such Restricted Payment.
Any Restricted Payment described in the preceding clause (3) shall be
excludable in the calculation of the amount of Restricted Payments, and any
Restricted Payment described in any other clause shall be included in the
calculation.
Limitation on Sale of Assets. The Company will not, and will not permit
any Restricted Subsidiary to, make any Asset Sale unless:
(1) the Company (or its Restricted Subsidiaries, as the case may be)
receives consideration at the time of such sale or other disposition at
least equal to the fair market value thereof (as determined in good faith
by the Company's Board of Directors and evidenced by a resolution of such
Board, including a majority of the Company's Disinterested Directors, in
the case of any Asset Sales or series of related Asset Sales having a fair
market value of $20 million or greater);
(2) (A) the consideration consists of cash, cash equivalents,
Permitted Financial Investments or property, equipment, leasehold
interests or other assets used in the Oil and Gas Business ("Permitted
Consideration") or (B) the portion of the consideration that does not
constitute Permitted Consideration, together with all other consideration
received for Asset Sales since the Issue Date that does not constitute
Permitted Consideration, has a fair market value of no more than 10% of
ACNTA; and
(3) the Net Available Proceeds received by the Company (or its
Restricted Subsidiaries, as the case may be) from such Asset Sale are
applied in accordance with the following two paragraphs.
The Company may apply such Net Available Proceeds, within 365 days
following the receipt of Net Available Proceeds from any Asset Sale, to:
(1) the repayment of Indebtedness of the Company under Credit
Facilities or other Senior Indebtedness, including any mandatory
redemption or repurchase or optional redemption of the Existing Notes or
the Notes;
(2) make an Investment in assets used in the Oil and Gas Business;
or
(3) develop by drilling the Company's oil and gas reserves.
If, upon completion of the 365-day period, any portion of the Net
Available Proceeds of any Asset Sale shall not have been applied by the Company
as described in clauses (1), (2) or (3) in the immediately preceding paragraph
and such remaining Net Available Proceeds, together with any remaining net cash
proceeds from any prior Asset Sale (such aggregate constituting "Excess
Proceeds"), exceed $15 million, then the Company will be obligated to make an
offer (the "Net Proceeds Offer") to purchase the Notes and any other Senior
Indebtedness in respect of which such an offer to purchase is also required to
be made concurrently with the Net Proceeds Offer having an aggregate principal
amount equal to the Excess Proceeds (such purchase to be made on a pro rata
basis if the amount available for such repurchase is less than the principal
amount of the Notes and other such Senior Indebtedness tendered in such Net
Proceeds Offer) at a purchase price of 100% of the principal amount thereof plus
accrued
32
interest to the date of repurchase. Upon the completion of the Net Proceeds
Offer, the amount of Excess Proceeds will be reset to zero.
Any Net Proceeds Offer will be conducted in substantially the same manner
as a change of control offer. The Company will comply with Section 14 of the
Exchange Act and the provisions of Regulation 14E and any other tender offer
rules under the Exchange Act and any other federal and state securities laws,
rules and regulations which may then be applicable to any Net Proceeds Offer.
During the period between any Asset Sale and the application of the Net
Available Proceeds therefrom in accordance with this covenant, all Net Available
Proceeds shall be maintained in a segregated account and shall be invested in
Permitted Financial Investments.
Notwithstanding the preceding, the Company will not, and will not permit
any Restricted Subsidiary to, directly or indirectly, make any Asset Sale of any
of the Capital Stock of a Restricted Subsidiary except pursuant to an Asset Sale
of all of the Capital Stock of such Restricted Subsidiary.
Limitation on Liens. The Company will not, and will not permit any
Restricted Subsidiary to, create, incur, assume or suffer to exist any Liens
(other than Permitted Liens) upon any of their respective properties securing
any Indebtedness of the Company or any Restricted Subsidiary, unless the Notes
are equally and ratably secured; provided that if such Indebtedness is expressly
subordinated to the Notes or the Guarantees, the Lien securing such Indebtedness
will be subordinated and junior to the Lien securing the Notes or the
Guarantees.
Limitation on Sale/Leaseback Transactions. The Company will not, and will
not permit any Restricted Subsidiary to, enter into any Sale/Leaseback
Transaction with any Person (other than the Company or any other Restricted
Subsidiary) unless:
(a) the Company or such Restricted Subsidiary would be entitled to
incur Indebtedness, in a principal amount equal to the Attributable
Indebtedness with respect to such Sale/Leaseback Transaction in accordance
with the covenant captioned " -- Limitation on Incurrence of Additional
Indebtedness;" or
(b) the Company or such Restricted Subsidiary receives proceeds from
such Sale/Leaseback Transactions at least equal to the fair market value
thereof (as determined in good faith by the Company's Board of Directors,
whose determination in good faith, evidenced by a resolution of such
Board, shall be conclusive) and such proceeds are applied in the same
manner and to the same extent as Net Available Proceeds and Excess
Proceeds from an Asset Sale.
Limitations on Mergers and Consolidations. The Company will not
consolidate or merge with or into any Person, or sell, convey, lease or
otherwise dispose of all or substantially all of its assets to any Person,
unless:
(1) the Person formed by or surviving such consolidation or merger
(if other than the Company), or to which such sale, lease, conveyance or
other disposition or assignment shall be made (collectively, the
"Successor"), is a corporation organized and existing under the laws of
the United States or any state thereof or the District of Columbia, or
Canada or any province thereof, and the Successor assumes by supplemental
indenture in a form satisfactory to the Trustee all of the obligations of
the Company under the Indenture and under the Notes;
(2) immediately before and after giving effect to such transaction,
no Event of Default shall have occurred and be continuing;
(3) immediately after giving effect to such transaction on a pro
forma basis, the Consolidated Tangible Net Worth of the Company (or the
Successor) is equal to or greater than the Consolidated Tangible Net Worth
of the Company immediately before such transaction; and
(4) immediately after giving effect to such transaction on a pro
forma basis, the Company (or the Successor) would be able to incur $1.00
of additional Indebtedness (other than Permitted Indebtedness) pursuant to
the first paragraph of the covenant captioned " -- Limitation on
Incurrence of Additional Indebtedness."
33
Limitation on Payment Restrictions Affecting Subsidiaries. The Company
will not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective any
consensual encumbrance or consensual restriction on the ability of any
Restricted Subsidiary of the Company to
(1) pay dividends or make any other distributions on its Capital
Stock to the Company or a Restricted Subsidiary,
(2) pay any Indebtedness owed to the Company or a Restricted
Subsidiary of the Company,
(3) make loans or advances to the Company or a Restricted Subsidiary
of the Company, or
(4) transfer any of its properties or assets to the Company or a
Restricted Subsidiary of the Company (each, a "Payment Restriction"),
except for (a) encumbrances or restrictions under Credit Facilities, provided
that any Payment Restrictions thereunder (other than, with respect to (4) above,
customary restrictions in security agreements or other loan documents thereunder
securing or governing Indebtedness of a Restricted Subsidiary) may be imposed
only upon the acceleration of the maturity of the Indebtedness thereunder; (b)
consensual encumbrances or consensual restrictions binding upon any Person at
the time such Person becomes a Restricted Subsidiary of the Company (unless the
agreement creating such consensual encumbrances or consensual restrictions was
entered into in connection with, or in contemplation of, such entity becoming a
Restricted Subsidiary); (c) consensual encumbrances or consensual restrictions
under any agreement that refinances or replaces any agreement described in
clauses (a) and (b) above, provided that the terms and conditions of any such
restrictions are no less favorable to the Holders of Notes than those under the
agreement so refinanced or replaced; and (d) customary non-assignment provisions
in leases, purchase money financings and any encumbrance or restriction due to
applicable law.
Limitation on Transactions with Affiliates. The Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly, enter
into any transaction or series of transactions (including, without limitation,
the sale, purchase or lease of any assets or properties or the rendering of any
services) with any Affiliate or beneficial owner (as defined in Rules 13d-3 and
13d-5 under the Exchange Act) of 10% or more of the Company's common stock
(other than with a Restricted Subsidiary) (an "Affiliate Transaction"), on terms
that are less favorable to the Company or such Restricted Subsidiary, as the
case may be, than would be available in a comparable transaction with an
unrelated Person. In addition, the Company will not, and will not permit any
Restricted Subsidiary of the Company to, enter into an Affiliate Transaction, or
any series of related Affiliate Transactions having a value of
(a) more than $5 million, unless a majority of the Board of
Directors of the Company (including a majority of the Company's
Disinterested Directors) determines in good faith, as evidenced by a
resolution of such Board, that such Affiliate Transaction or series of
related Affiliate Transactions is fair to the Company; or
(b) more than $25 million, unless the Company receives a written
opinion from a nationally recognized investment banking firm with total
assets in excess of $1.0 billion that such transaction or series of
transactions is fair to the Company from a financial point of view.
SEC Reports. Notwithstanding that the Company may not be required to
remain subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, the Company will file with the SEC and provide the Trustee and
Holders with annual reports and such information, documents and other reports
specified in Sections 13 and 15(d) of the Exchange Act.
CERTAIN DEFINITIONS
The following is a summary of certain defined terms used in the Indenture.
Reference is made to the Indenture for the full definition of all such terms and
for the definitions of capitalized terms used in this prospectus and not defined
below.
34
"Adjusted Consolidated EBITDA" means the Consolidated Net Income of the
Company and its Restricted Subsidiaries for the Reference Period, (a) increased
(to the extent deducted in determining Consolidated Net Income) by the sum,
without duplication, of:
(1) all income and state franchise taxes of the Company and its
Restricted Subsidiaries paid or accrued according to GAAP for such period
(other than income taxes attributable to extraordinary, unusual or
non-recurring gains or losses);
(2) all interest expense of the Company and its Restricted
Subsidiaries paid or accrued in accordance with GAAP for such period
(including amortization of original issue discount or premium);
(3) depreciation and depletion of the Company and its Restricted
Subsidiaries;
(4) amortization of the Company and its Restricted Subsidiaries
including, without limitation, amortization of capitalized debt issuance
costs;
(5) any loss realized in accordance with GAAP upon the sale or other
disposition of any property, plant or equipment of the Company or its
Restricted Subsidiaries (including pursuant to any Sale/Leaseback
Transaction) which is not sold or otherwise disposed of in the ordinary
course of business and any loss realized in accordance with GAAP upon the
sale or other disposition of any Capital Stock of any Person;
(6) any loss realized in accordance with GAAP from currency exchange
transactions not in the ordinary course of business consistent with past
practice;
(7) any loss net of income taxes realized in accordance with GAAP
attributable to extraordinary items;
(8) any charges associated solely with the prepayment of any
Indebtedness; and
(9) any other non-cash charges to the extent deducted from
Consolidated Net Income
and (b) decreased (to the extent included in determining Consolidated Net
Income) by the sum of
(1) the amount of deferred revenues that are amortized during the
Reference Period and are attributable to reserves that are subject to
Volumetric Production Payments and
(2) amounts recorded in accordance with GAAP as repayments of
principal and interest pursuant to Dollar-Denominated Production Payments.
"Adjusted Consolidated EBITDA Coverage Ratio" means, for any Reference
Period, the ratio on a pro forma basis of (a) Adjusted Consolidated EBITDA for
the Reference Period to (b) Adjusted Consolidated Interest Expense for such
Reference Period; provided, that, in calculating Adjusted Consolidated EBITDA
and Adjusted Consolidated Interest Expense
(1) acquisitions which occurred during the Reference Period or
subsequent to the Reference Period and on or prior to the date of the
transaction giving rise to the need to calculate the Adjusted Consolidated
EBITDA Coverage Ratio (the "Transaction Date") shall be assumed to have
occurred on the first day of the Reference Period,
(2) the incurrence of any Indebtedness (including the issuance of
the Notes) or issuance of any Disqualified Stock during the Reference
Period or subsequent to the Reference Period and on or prior to the
Transaction Date shall be assumed to have occurred on the first day of
such Reference Period,
(3) any Indebtedness that had been outstanding during the Reference
Period that has been repaid on or prior to the Transaction Date shall be
assumed to have been repaid as of the first day of such Reference Period,
35
(4) the Adjusted Consolidated Interest Expense attributable to
interest on any Indebtedness or dividends on any Disqualified Stock
bearing a floating interest (or dividend) rate shall be computed on a pro
forma basis as if the rate in effect on the Transaction Date were the
average rate in effect during the entire Reference Period and
(5) in determining the amount of Indebtedness pursuant to the
covenant captioned "Limitation on Incurrence of Additional Indebtedness,"
the incurrence of Indebtedness or issuance of Disqualified Stock giving
rise to the need to calculate the Adjusted Consolidated EBITDA Coverage
Ratio and, to the extent the net proceeds from the incurrence or issuance
thereof are used to retire Indebtedness, the application of the proceeds
therefrom shall be assumed to have occurred on the first day of the
Reference Period.
"Adjusted Consolidated Interest Expense" means, with respect to the
Company and its Restricted Subsidiaries, for the Reference Period, the aggregate
amount (without duplication) of
(a) interest expensed in accordance with GAAP (including, in
accordance with the following sentence, interest attributable to
Capitalized Lease Obligations, but excluding interest attributable to
Dollar-Denominated Production Payments and amortization of deferred debt
expense) during such period in respect of all Indebtedness of the Company
and its Restricted Subsidiaries (including (1) amortization of original
issue discount or premium on any Indebtedness (other than with respect to
the Existing Notes and the Notes), (2) the interest portion of all
deferred payment obligations, calculated in accordance with GAAP, and (3)
all commissions, discounts and other fees and charges owed with respect to
bankers' acceptance financings and currency and interest rate swap
arrangements, in each case to the extent attributable to such period), and
(b) dividend requirements of the Company and its Restricted
Subsidiaries with respect to any preferred stock dividends (whether in
cash or otherwise (except dividends paid solely in shares of Qualified
Stock)) paid (other than to the Company or any of its Restricted
Subsidiaries), declared, accrued or accumulated during such period,
divided by one minus the applicable actual combined federal, state, local
and foreign income tax rate of the Company and its Subsidiaries (expressed
as a decimal), on a consolidated basis, for the four quarters immediately
preceding the date of the transaction giving rise to the need to calculate
Consolidated Interest Expense,
in each case to the extent attributable to such period and excluding items
eliminated in consolidation. For purposes of this definition, (a) interest on a
Capitalized Lease Obligation shall be deemed to accrue at an interest rate
reasonably determined by the Company to be the rate of interest implicit in such
Capitalized Lease Obligation in accordance with GAAP and (b) interest expense
attributable to any Indebtedness represented by the guarantee by the Company or
a Restricted Subsidiary of the Company of an obligation of another Person shall
be deemed to be the interest expense attributable to the Indebtedness
guaranteed.
"Adjusted Consolidated Net Tangible Assets" or "ACNTA" means, without
duplication, as of the date of determination, (a) the sum of
(1) discounted future net revenue from proved oil and gas reserves
of the Company and its Restricted Subsidiaries calculated in accordance
with SEC guidelines before any state or federal income taxes, as estimated
by independent petroleum engineers in a reserve report prepared as of the
end of the Company's most recently completed fiscal year, as increased by,
as of the date of determination, the discounted future net revenue of (A)
estimated proved oil and gas reserves of the Company and its Restricted
Subsidiaries attributable to any acquisition consummated since the date of
such year-end reserve report and (B) estimated proved oil and gas reserves
of the Company and its Restricted Subsidiaries attributable to extensions,
discoveries and other additions and upward revisions of estimates of
proved oil and gas reserves due to exploration, development
36
or exploitation, production or other activities conducted or otherwise
occurring since the date of such year-end reserve report which, in the
case of sub-clauses (A) and (B), would, in accordance with standard
industry practice, result in such increases as calculated in accordance
with SEC guidelines (utilizing the prices utilized in such year-end
reserve report), and decreased by, as of the date of determination, the
discounted future net revenue of (C) estimated proved oil and gas reserves
of the Company and its Restricted Subsidiaries produced or disposed of
since the date of such year-end reserve report and (D) reductions in the
estimated oil and gas reserves of the Company and its Restricted
Subsidiaries since the date of such year-end reserve report attributable
to downward revisions of estimates of proved oil and gas reserves due to
exploration, development or exploitation, production or other activities
conducted or otherwise occurring since the date of such year-end reserve
report which, in the case of sub-clauses (C) and (D) would, in accordance
with standard industry practice, result in such decreases as calculated in
accordance with SEC guidelines (utilizing the prices utilized in such
year-end reserve report); provided that, in the case of each of the
determinations made pursuant to clauses (A) through (D), such increases
and decreases shall be as estimated by the Company's engineers,
(2) the capitalized costs that are attributable to oil and gas
properties of the Company and its Restricted Subsidiaries to which no
proved oil and gas reserves are attributable, based on the Company's books
and records as of a date no earlier than the date of the Company's latest
annual or quarterly financial statements,
(3) the Net Working Capital on a date no earlier than the date of
the Company's latest annual or quarterly financial statements and
(4) the greater of (I) the net book value on a date no earlier than
the date of the Company's latest annual or quarterly financial statements
and (II) the appraised value, as estimated by independent appraisers, of
other tangible assets (including Investments in unconsolidated
Subsidiaries) of the Company and its Restricted Subsidiaries, as of a date
no earlier than the date of the Company's latest audited financial
statements,
minus (b) the sum of
(1) minority interests,
(2) any gas balancing liabilities of the Company and its Restricted
Subsidiaries reflected in the Company's latest annual or quarterly
financial statements,
(3) the discounted future net revenue, calculated in accordance with
SEC guidelines (utilizing the prices utilized in the Company's year-end
reserve report), attributable to reserves which are required to be
delivered to third parties to fully satisfy the obligations of the Company
and its Restricted Subsidiaries with respect to Volumetric Production
Payments on the schedules specified with respect thereto,
(4) the discounted future net revenue, calculated in accordance with
SEC guidelines, attributable to reserves subject to Dollar-Denominated
Production Payments which, based on the estimates of production included
in determining the discounted future net revenue specified in (a)(1) above
(utilizing the same prices utilized in the Company's year-end reserve
report), would be necessary to fully satisfy the payment obligations of
the Company and its Restricted Subsidiaries with respect to
Dollar-Denominated Production Payments on the schedules specified with
respect thereto and
(5) the discounted future net revenue, calculated in accordance with
SEC guidelines (utilizing the same prices utilized in the Company's
year-end reserve report), attributable to reserves subject to
participation interests, overriding royalty interests or other interests
of third parties, pursuant to participation, partnership, vendor financing
or other agreements then in effect, or which otherwise are required to be
delivered to third parties.
If the Company changes its method of accounting from the full cost method to the
successful efforts method or a similar method of accounting, ACNTA will continue
to be calculated as if the Company were still using the full cost method of
accounting.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person directly or indirectly,
whether through the ownership of voting stock, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the foregoing.
"Asset Sale" means any sale, lease, transfer, exchange or other
disposition (or series of related sales, leases, transfers, exchanges or
dispositions) having a fair market value of $1,000,000 or more of shares of
Capital Stock of a Restricted Subsidiary (other than directors' qualifying
shares), or of property or assets (including the creation of Dollar-Denominated
Production Payments and Volumetric Production Payments, other than
Dollar-Denominated
37
Production Payments and Volumetric Production Payments created or sold in
connection with the financing of, and within 30 days after, the acquisition of
the properties subject thereto) or any interests therein (each referred to for
purposes of this definition as a "disposition") by the Company or any of its
Restricted Subsidiaries, including any disposition by means of a merger,
consolidation or similar transaction, other than
(a) by the Company to a Restricted Subsidiary or by a Restricted
Subsidiary to the Company or another Restricted Subsidiary,
(b) a sale of oil, gas or other hydrocarbons or other mineral
products in the ordinary course of business of the Company's oil and gas
production operations,
(c) any abandonment, farm-in, farm-out, lease and sub-lease of
developed and/or undeveloped properties made or entered into in the
ordinary course of business, but excluding (x) any sale of a net profits
or overriding royalty interest, in each case conveyed from or burdening
proved developed or proved undeveloped reserves and (y) any sale of
hydrocarbons or other mineral products as a result of the creation of
Dollar-Denominated Production Payments or Volumetric Production Payments,
other than Dollar-Denominated Production Payments and Volumetric
Production Payments created or sold in connection with the financing of,
and within 30 days after, the acquisition of the properties subject
thereto),
(d) the disposition of all or substantially all of the assets of the
Company in compliance with the covenant captioned "Limitations on Mergers
and Consolidations,"
(e) Sale/Leaseback Transactions in compliance with the covenant
captioned "Limitations on Sale/ Leaseback Transactions,"
(f) the provision of services and equipment for the operation and
development of the Company's oil and gas wells, in the ordinary course of
the Company's oil and gas service businesses, notwithstanding that such
transactions may be recorded as asset sales in accordance with full cost
accounting guidelines, and
(g) the issuance by the Company of shares of its Capital Stock.
"Attributable Indebtedness" means, with respect to any particular lease
under which any Person is at the time liable and at any date as of which the
amount thereof is to be determined, the present value of the total net amount of
rent required to be paid by such Person under the lease during the primary term
thereof, without giving effect to any renewals at the option of the lessee,
discounted from the respective due dates thereof to such date at the rate of
interest per annum implicit in the terms of the lease. As used in the preceding
sentence, the "net amount of rent" under any lease for any such period shall
mean the sum of rental and other payments required to be paid with respect to
such period by the lessee thereunder excluding any amounts required to be paid
by such lessee on account of maintenance and repairs, insurance, taxes,
assessments, water rates or similar charges. In the case of any lease which is
terminable by the lessee upon payment of a penalty, such net amount of rent
shall also include the amount of such penalty, but no rent shall be considered
as required to be paid under such lease subsequent to the first date upon which
it may be so terminated.
"Average Life" means, as of the date of determination, with respect to any
Indebtedness, the quotient obtained by dividing (a) the product of (x) the
number of years from such date to the date of each successive scheduled
principal payment of such Indebtedness multiplied by (y) the amount of such
principal payment by (b) the sum of all such principal payments.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of corporate
stock or partnership or limited liability company interests and any and all
warrants, options and rights with respect thereto (whether or not currently
exercisable), including each class of common stock and preferred stock of such
Person.
"Capitalized Lease Obligations" of any Person means the obligations of
such Person to pay rent or other amounts under a lease of property, real or
personal, that is required to be capitalized for financial reporting purposes
38
in accordance with GAAP, and the amount of such obligations shall be the
capitalized amount thereof determined in accordance with GAAP.
"Change of Control" means the occurrence of any of the following:
(1) the sale, lease or transfer, in one or a series of related
transactions, of all or substantially all of the Company's assets to any
Person or group (as such term is used in Section 13(d)(3) of the Exchange
Act), other than to Permitted Holders;
(2) the adoption of a plan relating to the liquidation or
dissolution of the Company;
(3) the acquisition, directly or indirectly, by any Person or group
(as such term is used in Section 13(d)(3) of the Exchange Act), other than
Permitted Holders, of beneficial ownership (as defined in Rule 13d-3 under
the Exchange Act, except that such Person shall be deemed to have
beneficial ownership of all shares that any such Person has the right to
acquire, whether such right is exercisable immediately or only after
passage of time) of more than 50% of the aggregate voting power of the
Voting Stock of the Company; provided, however, that the Permitted Holders
beneficially own (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act), directly or indirectly, in the aggregate a lesser percentage of the
total voting power of the Voting Stock of the Company than such other
Person and do not have the right or ability by voting power, contract or
otherwise to elect or designate for election a majority of the Board of
Directors of the Company (for the purposes of this definition, such other
Person shall be deemed to beneficially own any Voting Stock of a specified
corporation held by a parent corporation, if such other Person is the
beneficial owner (as defined above), directly or indirectly, of more than
35% of the voting power of the Voting Stock of such parent corporation and
the Permitted Holders beneficially own (as defined in this proviso),
directly or indirectly, in the aggregate a lesser percentage of the voting
power of the Voting Stock of such parent corporation and do not have the
right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the Board of Directors of such parent
corporation); or
(4) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors of the
Company (together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the
Company was approved by a vote of 66 2/3% of the directors of the Company
then still in office who were either directors at the beginning of such
period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Company then in office.
"Consolidated Net Income" of the Company means, for any period, the
aggregate net income (or loss) of the Company and its Restricted Subsidiaries
for such period on a consolidated basis, determined in accordance with GAAP;
provided, however, that there shall not be included in such Consolidated Net
Income:
(a) any net income of any Person if such Person is not the Company
or a Restricted Subsidiary, except that
(1) subject to the limitations contained in clause (d) below, the
Company's equity in the net income of any such Person for such period
shall be included in such Consolidated Net Income up to the aggregate
amount of cash or cash equivalents actually distributed by such Person
during such period to the Company or a Restricted Subsidiary as a dividend
or other distribution (subject, in the case of a dividend or other
distribution to a Restricted Subsidiary, to the limitations contained in
clause (c) below) and
(2) the Company's equity in a net loss of any such Person (other
than an Unrestricted Subsidiary) for such period shall be included in
determining such Consolidated Net Income;
(b) any net income (or loss) of any Person acquired by the Company
or a Subsidiary in a pooling of interests transaction for any period prior
to the date of such acquisition;
(c) the net income of any Restricted Subsidiary to the extent that
the payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, is prohibited;
39
(d) any gain (but not loss) realized upon the sale or other
disposition of any property, plant or equipment of the Company or any
Restricted Subsidiary (including pursuant to any Sale/Leaseback
Transaction) which is not sold or otherwise disposed of in the ordinary
course of business and any gain (but not loss) realized upon the sale or
other disposition of any Capital Stock of any Person;
(e) any gain (but not loss) from currency exchange transactions not
in the ordinary course of business consistent with past practice;
(f) the cumulative effect of a change in accounting principles;
(g) to the extent deducted in the calculation of net income, the
non-cash charges associated with the repayment of Indebtedness with the
proceeds from the sale of the Notes and the prepayment of any of the
Notes;
(h) any writedowns of non-current assets; provided, however, that
any "ceiling limitation" writedowns under SEC guidelines shall be treated
as capitalized costs, as if such writedowns had not occurred;
(i) any gain (but not loss) attributable to extraordinary items; and
(j) any unrealized non-cash gains or losses or charges in respect of
hedge or non-hedge derivatives (including those resulting from the
application of FAS 133).
"Consolidated Tangible Net Worth" means, with respect to the Company and
its Restricted Subsidiaries, as at any date of determination, the sum of Capital
Stock (other than Disqualified Stock) and additional paid-in capital plus
retained earnings (or minus accumulated deficit) minus all intangible assets,
including, without limitation, organization costs, patents, trademarks,
copyrights, franchises, research and development costs, and any amount reflected
in treasury stock, of the Company and its Restricted Subsidiaries determined on
a consolidated basis in accordance with GAAP.
"Credit Facilities" means, one or more debt facilities (including, without
limitation, the Company's existing credit facility) or commercial paper
facilities, in each case with banks or other institutional lenders providing for
revolving credit loans, term loans, receivables financing (including through the
sale of receivables to such lenders or to special purpose entities formed to
borrow from such lenders against such receivables) or letters of credit, in each
case, as amended, restated, modified, renewed, refunded, replaced or refinanced
in whole or in part from time to time.
"Currency Hedge Obligations" means, at any time as to the Company and its
Restricted Subsidiaries, the obligations of such Person at such time that were
incurred in the ordinary course of business pursuant to any foreign currency
exchange agreement, option or futures contract or other similar agreement or
arrangement designed to protect against or manage such Person's or any of its
Subsidiaries' exposure to fluctuations in foreign currency exchange rates.
"Disinterested Director" means, with respect to an Affiliate Transaction
or series of related Affiliate Transactions, a member of the Board of Directors
of the Company who has no financial interest, and whose employer has no
financial interest, in such Affiliate Transaction or series of related Affiliate
Transactions.
"Disqualified Stock" means any Capital Stock of the Company or any
Restricted Subsidiary of the Company which, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable), or upon
the happening of any event or with the passage of time, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, in whole or in part, on or
prior to the Maturity Date or which is exchangeable or convertible into debt
securities of the Company or any Restricted Subsidiary of the Company, except to
the extent that such exchange or conversion rights cannot be exercised prior to
the Maturity Date.
"Dollar-Denominated Production Payments" mean production payment
obligations recorded as liabilities in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
40
"Equity Offering" means any underwritten public offering of Capital Stock
(other than Disqualified Stock) of the Company pursuant to a registration
statement filed pursuant to the Securities Act or any private placement of
Capital Stock (other than Disqualified Stock) of the Company (other than to any
Person who, prior to such private placement, was an Affiliate of the Company)
which offering or placement is consummated after the Issue Date.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC hereunder.
"Existing Notes" means the Company's outstanding (a) 7.875% Senior Notes
due 2004, (b) 8.5% Senior Notes due 2012, (c) 8.125% Senior Notes due 2011 and
(d) 8.375% Senior Notes due 2008.
"GAAP" means generally accepted accounting principles as in effect in the
United States of America as of the Issue Date.
"Guarantee" means, individually and collectively, the guarantees given by
the Subsidiary Guarantors pursuant to Article Ten of the Indenture.
"Holder" means a Person in whose name a Note is registered on the
Registrar's books.
"Indebtedness" means, without duplication, with respect to any Person,
(a) all obligations of such Person
(1) in respect of borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a portion
thereof),
(2) evidenced by bonds, notes, debentures or similar instruments,
(3) representing the balance deferred and unpaid of the purchase
price of any property or services (other than accounts payable or other
obligations arising in the ordinary course of business),
(4) evidenced by bankers' acceptances or similar instruments issued
or accepted by banks,
(5) for the payment of money relating to a Capitalized Lease
Obligation, or
(6) evidenced by a letter of credit or a reimbursement obligation of
such Person with respect to any letter of credit;
(b) all net obligations of such Person in respect of Currency Hedge
Obligations, Interest Rate Hedge Agreements and Oil and Gas Hedging
Contracts, except to the extent such net obligations are taken into
account in the determination of future net revenues from proved oil and
gas reserves for purposes of the calculation of Adjusted Consolidated Net
Tangible Assets;
(c) all liabilities of others of the kind described in the preceding
clauses (a) or (b) that such Person has guaranteed or that are otherwise
its legal liability (including, with respect to any Production Payment,
any warranties or guaranties of production or payment by such Person with
respect to such Production Payment but excluding other contractual
obligations of such Person with respect to such Production Payment);
(d) Indebtedness (as otherwise defined in this definition) of
another Person secured by a Lien on any asset of such Person, whether or
not such Indebtedness is assumed by such Person, the amount of such
obligations being deemed to be the lesser of
(1) the full amount of such obligations so secured and
(2) the fair market value of such asset, as determined in good faith
by the Board of Directors of such Person, which determination shall be
evidenced by a resolution of such Board;
41
(e) with respect to such Person, the liquidation preference or any
mandatory redemption payment obligations in respect of Disqualified Stock;
(f) the aggregate preference in respect of amounts payable on the issued
and outstanding shares of preferred stock of any of the Company's Restricted
Subsidiaries in the event of any voluntary or involuntary liquidation,
dissolution or winding up (excluding any such preference attributable to such
shares of preferred stock that are owned by such Person or any of its
Restricted Subsidiaries; provided, that if such Person is the Company, such
exclusion shall be for such preference attributable to such shares of
preferred stock that are owned by the Company or any of its Restricted
Subsidiaries); and
(g) any and all deferrals, renewals, extensions, refinancings and
refundings (whether direct or indirect) of, or amendments, modifications or
supplements to, any liability of the kind described in any of the preceding
clauses (a), (b), (c), (d), (e) or (f) or this clause (g), whether or not
between or among the same parties.
Subject to clause (c) of the preceding sentence, neither Dollar-Denominated
Production Payments nor Volumetric Production Payments shall be deemed to be
Indebtedness.
"Interest Rate Hedging Agreements" means, with respect to the Company and its
Restricted Subsidiaries, the obligations of such Persons under (a) interest rate
swap agreements, interest rate cap agreements and interest rate collar
agreements and (b) other agreements or arrangements designed to protect any such
Person or any of its Subsidiaries against fluctuations in interest rates.
"Investment" of any Person means (a) all investments by such Person in any
other Person in the form of loans, advances or capital contributions, (b) all
guarantees of Indebtedness or other obligations of any other Person by such
Person, (c) all purchases (or other acquisitions for consideration) by such
Person of assets, Indebtedness, Capital Stock or other securities of any other
Person and (d) all other items that would be classified as investments
(including, without limitation, purchases of assets outside the ordinary course
of business) or advances on a balance sheet of such Person prepared in
accordance with GAAP.
"Issue Date" means the first date on which the Notes are originally issued,
August 12, 2002.
"Lien" means, with respect to any Person, any mortgage, pledge, lien,
encumbrance, easement, restriction, covenant, right-of-way, charge or adverse
claim affecting title or resulting in an encumbrance against real or personal
property of such Person, or a security interest of any kind (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, any option, right of first refusal or other similar agreement to sell,
in each case securing obligations of such Person and any filing of or agreement
to give any financing statement under the Uniform Commercial Code (or equivalent
statute or statutes) of any jurisdiction).
"Make-Whole Amount" with respect to a Note means an amount equal to the
excess, if any, of (a) the present value of the remaining interest, premium and
principal payments due on such Note (excluding any portion of such payments of
interest accrued as of the redemption date) as if such Note were redeemed on
August 15, 2007, computed using a discount rate equal to the Treasury Rate plus
50 basis points, over (b) the outstanding principal amount of such Note.
"Treasury Rate" with respect to a Note means the yield to maturity (calculated
on a semi-annual bond equivalent basis) at the time of the computation of United
States Treasury securities with a constant maturity (as compiled by and
published in the most recent Federal Reserve Statistical Release H.15(519),
which has become publicly available at least two business days prior to the date
of the redemption notice or, if such Statistical Release is no longer published,
any publicly available source of similar market data) most nearly equal to the
then remaining maturity of such Note assuming that such Note will be redeemed on
August 15, 2007; provided, however, that if the Make-Whole Average Life of a
Note is not equal to the constant maturity of the United States Treasury
security for which a weekly average yield is given, the Treasury Rate shall be
obtained by linear interpolation (calculated to the nearest one-twelfth of a
year) from the weekly average yields of United States Treasury securities for
which such yields are given, except that if the Make-Whole Average Life of such
Note is less than one year, the weekly average yield on actually traded United
States Treasury securities adjusted to a constant maturity of one year shall be
used. "Make-Whole Average Life" means, with respect to a Note, the number of
years (calculated to the nearest one-twelfth of a year) between the date of
redemption of such Note and August 15, 2007.
42
"Make-Whole Price" means the greater of (a) the sum of the outstanding
principal amount of the Notes to be redeemed plus the Make-Whole Amount of such
Notes and (b) the redemption price (expressed as a percentage of the principal
amount) of such Notes on August 15, 2007.
"Maturity Date" means August 15, 2012.
"Net Available Proceeds" means, with respect to any Asset Sale or
Sale/Leaseback Transaction of any Person, cash proceeds received (including any
cash proceeds received by way of deferred payment of principal pursuant to a
note or installment receivable or otherwise, but only as and when received, and
excluding any other consideration until such time as such consideration is
converted into cash) therefrom, in each case net of all legal, title and
recording tax expenses, commissions and other fees and expenses incurred, and
all federal, state or local taxes required to be accrued as a liability as a
consequence of such Asset Sale or Sale/Leaseback Transaction, and in each case
net of all Indebtedness which is secured by such assets, in accordance with the
terms of any Lien upon or with respect to such assets, or which must, by its
terms or in order to obtain a necessary consent to such Asset Sale or
Sale/Leaseback Transaction or by applicable law, be repaid out of the proceeds
from such Asset Sale or Sale/Leaseback Transaction and which is actually so
repaid.
"Net Cash Proceeds" means, in the case of any sale by the Company of
securities pursuant to clauses (3) (B) or (C) of the covenant captioned
"Limitation on Restricted Payments," the aggregate net cash proceeds received by
the Company, after payment of expenses, commissions, discounts and any other
transaction costs incurred in connection therewith.
"Net Working Capital" means (a) all current assets of the Company and its
Restricted Subsidiaries, minus (b) all current liabilities of the Company and
its Restricted Subsidiaries, except current liabilities included in
Indebtedness.
"Non-Recourse Indebtedness" means Indebtedness or that portion of
Indebtedness of a Non-Recourse Subsidiary as to which (a) neither the Company
nor any other Subsidiary (other than a Non-Recourse Subsidiary) (1) provides
credit support, including any undertaking, agreement or instrument which would
constitute Indebtedness or (2) is directly or indirectly liable for such
Indebtedness and (b) no default with respect to such Indebtedness (including any
rights which the holders thereof may have to take enforcement action against a
Non-Recourse Subsidiary) would permit (upon notice, lapse of time or both) any
holder of any other Indebtedness (other than Non-Recourse Indebtedness) of the
Company or its Subsidiaries (other than a Non-Recourse Subsidiary) to declare a
default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity.
"Non-Recourse Subsidiary" means a Subsidiary or an Affiliate (1) established
for the purpose of acquiring or investing in property securing Non-Recourse
Indebtedness, (2) substantially all of the assets of which consist of property
securing Non-Recourse Indebtedness, and (3) which shall have been designated as
a Non-Recourse Subsidiary by a Board Resolution adopted by the Board of
Directors of the Company, as evidenced by an officers' certificate delivered to
the Trustee. The Company may redesignate any Non-Recourse Subsidiary of the
Company to be a Subsidiary other than a Non-Recourse Subsidiary by a Board
Resolution adopted by the Board of Directors of the Company, as evidenced by an
officers' certificate delivered to the Trustee, if, after giving effect to such
redesignation, the Company could borrow $1.00 of additional Indebtedness (other
than Permitted Indebtedness) pursuant to the first paragraph of the covenant
captioned "Limitation on Incurrence of Additional Indebtedness" (such
redesignation being deemed an incurrence of additional Indebtedness (other than
Non-Recourse Indebtedness)).
"Oil and Gas Business" means the business of the exploration for, and
exploitation, development, production, processing (but not refining), marketing,
storage and transportation of, hydrocarbons, and other related energy and
natural resource businesses (including oil and gas services businesses related
to the foregoing).
"Oil and Gas Hedging Contracts" means any oil and gas purchase or hedging
agreement, and other agreement or arrangement, in each case, that is designed to
provide protection against price fluctuations of oil, gas or other commodities.
43
"Oil and Gas Securities" means the Voting Stock of a Person primarily engaged
in the Oil and Gas Business, provided that such Voting Stock shall constitute a
majority of the Voting Stock of such Person in the event that such Voting Stock
is not registered under Section 12 of the Exchange Act.
"Permitted Business Investments" means
(1) Investments in assets used in the Oil and Gas Business;
(2) the acquisition of Oil and Gas Securities;
(3) the entry into operating agreements, joint ventures, processing
agreements, farm-out agreements, development agreements, area of mutual
interest agreements, contracts for the sale, transportation or exchange of
oil and natural gas, unitization agreements, pooling arrangements, joint
bidding agreements, service contracts, partnership agreements (whether
general or limited) or other similar or customary agreements, transactions,
properties, interests or arrangements, and Investments and expenditures in
connection therewith or pursuant thereto, in each case made or entered into
in the ordinary course of the Oil and Gas Business, excluding, however,
Investments in corporations;
(4) the acquisition of working interests, royalty interests or mineral
leases relating to oil and gas properties;
(5) Investments by the Company or any Restricted Subsidiary in any Person
which, immediately prior to the making of such Investment, is a Restricted
Subsidiary;
(6) Investments in the Company by any Restricted Subsidiary;
(7) Investments permitted under the covenants captioned "Limitation on
Sale of Assets" and "Limitation on Sale/Leaseback Transactions";
(8) Investments in any Person the consideration for which consists of
Qualified Stock and
(9) any other Investments in an amount not to exceed 10% of Adjusted
Consolidated Net Tangible Assets determined as of the date of the making or
incurrence of such Investment.
"Permitted Company Refinancing Indebtedness" means Indebtedness of the
Company, the net proceeds of which are used to renew, extend, refinance, refund
or repurchase outstanding Indebtedness of the Company, provided that
(1) if the Indebtedness (including the Notes) being renewed, extended,
refinanced, refunded or repurchased is pari passu with or subordinated in
right of payment to the Notes, then such Indebtedness is pari passu or
subordinated in right of payment to, as the case may be, the Notes at least
to the same extent as the Indebtedness being renewed, extended, refinanced,
refunded or repurchased,
(2) such Indebtedness is scheduled to mature no earlier than the
Indebtedness being renewed, extended, refinanced, refunded or repurchased,
and
(3) such Indebtedness has an Average Life at the time such Indebtedness is
incurred that is equal to or greater than the Average Life of the
Indebtedness being renewed, extended, refinanced, refunded or repurchased;
provided, further, that such Indebtedness (to the extent that such Indebtedness
constitutes Permitted Company Refinancing Indebtedness) is in an aggregate
principal amount (or, if such Indebtedness is issued at a price less than the
principal amount thereof, the aggregate amount of gross proceeds therefrom is)
not in excess of the aggregate principal amount then outstanding of the
Indebtedness being renewed, extended, refinanced, refunded or repurchased (or if
the Indebtedness being renewed, extended, refinanced, refunded or repurchased
was issued at a price less than the principal amount thereof, then not in excess
of the amount of liability in respect thereof determined in accordance with
GAAP).
44
"Permitted Financial Investments" means the following kinds of instruments
if, in the case of instruments referred to in clauses (1)-(4) below, on the date
of purchase or other acquisition of any such instrument by the Company or any
Subsidiary, the remaining term to maturity is not more than one year:
(1) readily marketable obligations issued or unconditionally guaranteed as
to principal of and interest thereon by the United States of America or by
any agency or authority controlled or supervised by and acting as an
instrumentality of the United States of America;
(2) repurchase obligations for instruments of the type described in clause
(1) for which delivery of the instrument is made against payment;
(3) obligations (including, but not limited to, demand or time deposits,
bankers' acceptances and certificates of deposit) issued by a depository
institution or trust company incorporated or doing business under the laws of
the United States of America, any state thereof or the District of Columbia
or a branch or subsidiary of any such depository institution or trust company
operating outside the United States, provided, that such depository
institution or trust company has, at the time of the Company's or such
Subsidiary's investment therein or contractual commitment providing for such
investment, capital surplus or undivided profits (as of the date of such
institution's most recently published financial statements) in excess of
$500,000,000;
(4) commercial paper issued by any corporation, if such commercial paper
has, at the time of the Company's or any Subsidiary's investment therein or
contractual commitment providing for such investment, credit ratings of A-1
(or higher) by Standard & Poor's Ratings Services and P-1 (or higher) by
Moody's Investors Service, Inc.; and
(5) money market mutual or similar funds having assets in excess of
$500,000,000.
"Permitted Holders" means Aubrey K. McClendon and Tom L. Ward and their
respective Affiliates.
"Permitted Indebtedness" means
(1) additional Indebtedness of the Company and its Restricted Subsidiaries
under Credit Facilities in a principal amount outstanding under this clause
(1) at any time not to exceed the greater of
(a) $300 million and
(b) $100 million plus 20% of Adjusted Consolidated Net Tangible Assets;
(2) Indebtedness of the Company and its Restricted Subsidiaries
outstanding on the Issue Date;
(3) other Indebtedness of the Company and its Restricted Subsidiaries in a
principal amount not to exceed $40 million at any one time outstanding;
(4) Non-Recourse Indebtedness;
(5) Indebtedness of the Company to any Restricted Subsidiary of the
Company and Indebtedness of any Restricted Subsidiary of the Company to the
Company or another Restricted Subsidiary of the Company;
(6) Permitted Company Refinancing Indebtedness;
(7) Permitted Subsidiary Refinancing Indebtedness;
(8) obligations of the Company and its Restricted Subsidiaries under
Currency Hedge Obligations, Oil and Gas Hedging Contracts or Interest Rate
Hedging Agreements;
(9) Indebtedness under the Notes (excluding any Add On Notes);
45
(10) Indebtedness of a Subsidiary pursuant to a Guarantee of the Notes in
accordance with the Indenture; and
(11) Indebtedness consisting of any guarantee by the Company or one of its
Restricted Subsidiaries of Indebtedness of the Company or a Restricted
Subsidiary outstanding on the Issue Date or permitted by the Indenture to be
incurred thereafter by the Company or its Restricted Subsidiary.
"Permitted Investments" means Permitted Business Investments and Permitted
Financial Investments.
"Permitted Liens" means
(1) Liens existing on the Issue Date;
(2) Liens securing Indebtedness under Credit Facilities permitted by the
Indenture to be incurred;
(3) Liens now or hereafter securing any obligations under Interest Rate
Hedging Agreements so long as the related Indebtedness (a) constitutes the
Existing Notes or the Notes (or any Permitted Company Refinancing
Indebtedness in respect thereof) or (b) is, or is permitted to be under the
Indenture, secured by a Lien on the same property securing such interest rate
hedging obligations;
(4) Liens securing Permitted Company Refinancing Indebtedness or Permitted
Subsidiary Refinancing Indebtedness; provided, that such Liens extend to or
cover only the property or assets currently securing the Indebtedness being
refinanced and that the Indebtedness being refinanced was not incurred under
the Credit Facilities;
(5) Liens for taxes, assessments and governmental charges not yet
delinquent or being contested in good faith and for which adequate reserves
have been established to the extent required by GAAP;
(6) mechanics', worker's, materialmen's, operators' or similar Liens
arising in the ordinary course of business;
(7) Liens in connection with worker's compensation, unemployment insurance
or other social security, old age pension or public liability obligations;
(8) Liens, deposits or pledges to secure the performance of bids, tenders,
contracts (other than contracts for the payment of money), leases, public or
statutory obligations, surety, stay, appeal, indemnity, performance or other
similar bonds, or other similar obligations arising in the ordinary course of
business;
(9) survey exceptions, encumbrances, easements or reservations of, or
rights of others for, rights of way, zoning or other restrictions as to the
use of real properties, and minor defects in title which, in the case of any
of the foregoing, were not incurred or created to secure the payment of
borrowed money or the deferred purchase price of property or services, and in
the aggregate do not materially adversely affect the value of such properties
or materially impair use for the purposes of which such properties are held
by the Company or any Restricted Subsidiaries;
(10) Liens on, or related to, properties to secure all or part of the costs
incurred in the ordinary course of business of exploration, drilling,
development or operation thereof;
(11) Liens on pipeline or pipeline facilities which arise out of
operation of law;
(12) judgment and attachment Liens not giving rise to an Event of Default
or Liens created by or existing from any litigation or legal proceeding that
are currently being contested in good faith by appropriate proceedings and
for which adequate reserves have been made;
(13) (a) Liens upon any property of any Person existing at the time of
acquisition thereof by the Company or a Restricted Subsidiary, (b) Liens upon
any property of a Person existing at the time such Person is merged or
consolidated with the Company or any Restricted Subsidiary or existing at the
time of the sale or transfer of any
46
such property of such Person to the Company or any Restricted Subsidiary, or
(c) Liens upon any property of a Person existing at the time such Person
becomes a Restricted Subsidiary; provided, that in each case such Lien has
not been created in contemplation of such sale, merger, consolidation,
transfer or acquisition, and provided that in each such case no such Lien
shall extend to or cover any property of the Company or any Restricted
Subsidiary other than the property being acquired and improvements thereon;
(14) Liens on deposits to secure public or statutory obligations or in lieu
of surety or appeal bonds entered into in the ordinary course of business;
(15) Liens in favor of collecting or payor banks having a right of setoff,
revocation, refund or chargeback with respect to money or instruments of the
Company or any Subsidiary on deposit with or in possession of such bank;
(16) purchase money security interests granted in connection with the
acquisition of assets in the ordinary course of business and consistent with
past practices, provided, that (A) such Liens attach only to the property so
acquired with the purchase money indebtedness secured thereby and (B) such
Liens secure only Indebtedness that is not in excess of 100% of the purchase
price of such assets;
(17) Liens reserved in oil and gas mineral leases for bonus or rental
payments and for compliance with the terms of such leases;
(18) Liens arising under partnership agreements, oil and gas leases,
farm-out agreements, division orders, contracts for the sale, purchase,
exchange, transportation or processing (but not refining) of oil, gas or
other hydrocarbons, unitization and pooling declarations and agreements,
development agreements, operating agreements, area of mutual interest
agreements, and other similar agreements which are customary in the Oil and
Gas Business;
(19) Liens securing obligations of the Company or any of its Restricted
Subsidiaries under Currency Hedge Obligations or Oil and Gas Hedging
Contracts; and
(20) Liens to secure Dollar-Denominated Production Payments and
Volumetric Production Payments.
"Permitted Subsidiary Refinancing Indebtedness" means Indebtedness of any
Restricted Subsidiary, the net proceeds of which are used to renew, extend,
refinance, refund or repurchase outstanding Indebtedness of such Restricted
Subsidiary, provided that
(1) if the Indebtedness (including the Guarantees) being renewed, extended,
refinanced, refunded or repurchased is pari passu with or subordinated in
right of payment to the Guarantees, then such Indebtedness is pari passu with
or subordinated in right of payment to, as the case may be, the Guarantees at
least to the same extent as the Indebtedness being renewed, extended,
refinanced, refunded or repurchased,
(2) such Indebtedness is scheduled to mature no earlier than the
Indebtedness being renewed, extended, refinanced, refunded or repurchased,
and
(3) such Indebtedness has an Average Life at the time such Indebtedness is
incurred that is equal to or greater than the Average Life of the
Indebtedness being renewed, extended, refinanced, refunded or repurchased;
provided, further, that such Indebtedness (to the extent that such Indebtedness
constitutes Permitted Subsidiary Refinancing Indebtedness) is in an aggregate
principal amount (or, if such Indebtedness is issued at a price less than the
principal amount thereof, the aggregate amount of gross proceeds therefrom is)
not in excess of the aggregate principal amount then outstanding of the
Indebtedness being renewed, extended, refinanced, refunded or repurchased (or if
the Indebtedness being renewed, extended, refinanced, refunded or repurchased
was issued at a price less than the principal amount thereof, then not in excess
of the amount of liability in respect thereof determined in accordance with
GAAP); provided, however, that a Restricted Subsidiary shall not incur
refinancing Indebtedness to renew, extend, refinance, refund or repurchase
outstanding Indebtedness of the Company or another Subsidiary.
47
"Person" means any individual, corporation, partnership, joint venture,
trust, estate, unincorporated organization or government or any agency or
political subdivision thereof.
"Preferred Stock" means the 624,037 shares of 7% Cumulative Convertible
Preferred Stock of the Company having a par value of $0.01 per share and a
liquidation preference of $50 per share issued by the Company, all of which
shares were redeemed as of May 1, 2001.
"Preferred Stock Offering" means the private placement of the Preferred Stock
that closed on or about April 22, 1998.
"Production Payments" means, collectively, Dollar-Denominated Production
Payments and Volumetric Production Payments.
"Proved Developed Properties" means working interests, royalty interests, and
other interests in oil, gas or mineral leases or other interests in oil, gas or
mineral properties to which reserves are attributed which may properly be
categorized as proved developed reserves under Regulation S-X under the
Securities Act; together with all contracts, agreements and contract rights
which cover, affect or otherwise relate to such interests; all hydrocarbons and
all payments of any type in lieu of production; all improvements, fixtures,
equipment, information, data and other property used in connection therewith or
in connection with the treating, handling, storing, processing, transporting or
marketing of such hydrocarbons; all insurance policies relating thereto or to
the operation thereof; all personal property related thereto; and all proceeds
thereof.
"Qualified Stock" means any Capital Stock that is not Disqualified Stock.
"Reference Date" means March 31, 1998.
"Reference Period" means, with respect to any Person, the period of four
consecutive fiscal quarters ending with the last full fiscal quarter for which
financial information is available immediately preceding any date upon which any
determination is to be made pursuant to the terms of either Indenture or the
related Notes.
"Restricted Payment" means, with respect to any Person, any of the following:
(1) any dividend or other distribution in respect of such Person's Capital
Stock (other than (a) dividends or distributions payable solely in Capital
Stock (other than Disqualified Stock), (b) in the case of Restricted
Subsidiaries of the Company, dividends or distributions payable to the
Company or to a Restricted Subsidiary of the Company and (c) in the case of
the Company, cash dividends payable on the Preferred Stock);
(2) the purchase, redemption or other acquisition or retirement for value
of any Capital Stock, or any option, warrant, or other right to acquire
shares of Capital Stock, of the Company or any of its Restricted
Subsidiaries;
(3) the making of any principal payment on, or the purchase, defeasance,
repurchase, redemption or other acquisition or retirement for value, prior to
any scheduled maturity, scheduled repayment or scheduled sinking fund
payment, of any Indebtedness which is subordinated in right of payment to the
Notes; and
(4) the making by such Person of any Investment other than a Permitted
Investment.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary. The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided, however, that, immediately
after giving effect to such designation of any Unrestricted Subsidiary, the
Company could incur at least $1.00 in additional Indebtedness (other than
Permitted Indebtedness) pursuant to the first paragraph of the covenant
captioned "Limitation on Incurrence of Additional Indebtedness."
"Sale/Leaseback Transaction" means with respect to the Company or any of its
Restricted Subsidiaries, any arrangement with any Person providing for the
leasing by the Company or any of its Restricted Subsidiaries of any
48
principal property, acquired or placed into service more than 180 days prior to
such arrangement, whereby such property has been or is to be sold or transferred
by the Company or any of its Restricted Subsidiaries to such Person.
"Senior Indebtedness" means any Indebtedness of the Company or a Subsidiary
Guarantor (whether outstanding on the Issue Date or thereafter incurred), unless
such Indebtedness is contractually subordinate or junior in right of payment of
principal, premium and interest to the Notes or the Guarantees, respectively.
"Subordinated Indebtedness of a Subsidiary Guarantor" means any Indebtedness
of such Subsidiary Guarantor, whether outstanding on the Issue Date or
thereafter created, incurred or assumed, which is contractually subordinate or
junior in right of payment of principal, premium and interest to the Guarantees.
"Subordinated Indebtedness of the Company" means any Indebtedness of the
Company, whether outstanding on the Issue Date or thereafter created, incurred
or assumed, which is contractually subordinate or junior in right of payment of
principal, premium and interest to the Notes.
"Subsidiary" means any subsidiary of the Company. A "subsidiary" of any
Person means
(1) a corporation a majority of whose Voting Stock is at the time, directly
or indirectly, owned by such Person, by one or more subsidiaries of such
Person or by such Person and one or more subsidiaries of such Person,
(2) a partnership in which such Person or a subsidiary of such Person is,
at the date of determination, a general or limited partner of such
partnership, but only if such Person or its subsidiary is entitled to receive
more than 50 percent of the assets of such partnership upon its dissolution,
or
(3) any other Person (other than a corporation or partnership) in which
such Person, directly or indirectly, at the date of determination thereof,
has (x) at least a majority ownership interest or (y) the power to elect or
direct the election of a majority of the directors or other governing body of
such Person.
"Subsidiary Guarantor" means (a) each of the Subsidiaries that becomes a
guarantor of the Notes in compliance with the provisions of the Indenture and
(b) each of the Subsidiaries executing a supplemental indenture in which such
Subsidiary agrees to be bound by the terms of the Indenture.
"Unrestricted Subsidiary" means (a) Chesapeake Energy Marketing, Inc. until
such time as such Subsidiary shall be designated as a Restricted Subsidiary in
accordance with the requirements of the Indenture, (b) any Subsidiary of an
Unrestricted Subsidiary and (c) any Subsidiary of the Company or of a Restricted
Subsidiary that is designated as an Unrestricted Subsidiary by a resolution
adopted by the Board of Directors in accordance with the requirements of the
following sentence. The Company may designate any Subsidiary of the Company or
of a Restricted Subsidiary (including a newly acquired or newly formed
Subsidiary or any Restricted Subsidiary of the Company), to be an Unrestricted
Subsidiary by a resolution of the Board of Directors of the Company, as
evidenced by written notice thereof delivered to the Trustee, if immediately
after giving effect to such designation,
(1) the Company could incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to the first paragraph of the covenant
captioned "Limitation on Incurrence of Additional Indebtedness,"
(2) the Company could make an additional Restricted Payment of $1.00
pursuant to the first paragraph of the covenant captioned "Limitation on
Restricted Payments,"
(3) such Subsidiary does not own or hold any Capital Stock of, or any
lien on any property of, the Company or any Restricted Subsidiary and
(4) such Subsidiary is not liable, directly or indirectly, with respect to
any Indebtedness other than Unrestricted Subsidiary Indebtedness.
49
"Unrestricted Subsidiary Indebtedness" of any Person means Indebtedness of
such Person
(a) as to which neither the Company nor any Restricted Subsidiary is
directly or indirectly liable (by virtue of the Company's or such Restricted
Subsidiary's being the primary obligor, or guarantor of, or otherwise liable
in any respect on, such Indebtedness),
(b) which, with respect to Indebtedness incurred after the Issue Date by
the Company or any Restricted Subsidiary, upon the occurrence of a default
with respect thereto, does not result in, or permit any holder of any
Indebtedness of the Company or any Restricted Subsidiary to declare a default
on such Indebtedness of the Company or any Restricted Subsidiary and
(c) which is not secured by any assets of the Company or of any
Restricted Subsidiary.
"U.S. Government Securities" means securities that are (1) direct obligations
of the United States of America for the payment of which its full faith and
credit is pledged or (2) obligations of a Person controlled or supervised by and
acting as an agency or instrumentality of the United States of America the
payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case under clauses
(1) or (2) are not callable or redeemable at the option of the issuer thereof.
"U.S. Legal Tender" means such coin or currency of the United States as at
the time of payment shall be legal tender for the payment of public and private
debts.
"Volumetric Production Payments" mean production payment obligations recorded
as deferred revenue in accordance with GAAP, together with all undertakings and
obligations in connection therewith.
"Voting Stock" means, with respect to any Person, securities of any class or
classes of Capital Stock in such Person entitling the holders thereof (whether
at all times or only so long as no senior class of stock has voting power by
reason of contingency) to vote in the election of members of the Board of
Directors or other governing body of such Person.
EVENTS OF DEFAULT
The following will be Events of Default with respect to the Notes:
(1) default by the Company or any Subsidiary Guarantor in the payment of
principal of or premium, if any, on the Notes when due and payable at
maturity, upon repurchase pursuant to the covenants described under
"Limitation on Sale of Assets" or "Change of Control," upon acceleration or
otherwise;
(2) default by the Company or any Subsidiary Guarantor for 30 days in
payment of any interest on the Notes;
(3) default by the Company or any Subsidiary Guarantor in the deposit of
any optional redemption payment;
(4) default on any other Indebtedness (other than Non-Recourse Indebtedness
and Unrestricted Subsidiary Indebtedness) of the Company, any Subsidiary
Guarantor or any other Subsidiary (other than a Non-Recourse Subsidiary or an
Unrestricted Subsidiary) if either
(A) such default results in the acceleration of the maturity of any
such Indebtedness having a principal amount of $10.0 million or more
individually or, taken together with the principal amount of any other such
Indebtedness the maturity of which has been so accelerated, in the
aggregate, or
(B) such default results from the failure to pay when due principal of,
premium, if any, or interest on, any such Indebtedness, after giving effect
to any applicable grace period (a "Payment Default"), having a principal
amount of $10.0 million or more individually or, taken together with the
principal amount of any other Indebtedness under which there has been a
Payment Default, in the aggregate;
50
(5) default in the performance, or breach of, the covenants set forth in
the covenants captioned "Limitation on Restricted Payments" and "Limitations
on Mergers and Consolidations," or in the performance, or breach of, any
other covenant or agreement of the Company or any Subsidiary Guarantor in the
Indenture and failure to remedy such default within a period of 45 days after
written notice thereof from the Trustee or Holders of 25% of the principal
amount of the outstanding Notes;
(6) the entry by a court of one or more judgments or orders for the payment
of money against the Company, any Subsidiary Guarantor or any other
Subsidiary (other than a Non-Recourse Subsidiary or an Unrestricted
Subsidiary, provided that neither the Company nor any Restricted Subsidiary
is liable, directly or indirectly, for such judgment or order) in an
aggregate amount in excess of $10.0 million (net of applicable insurance
coverage by a third party insurer which is acknowledged in writing by such
insurer) that has not been vacated, discharged, satisfied or stayed pending
appeal within 60 days from the entry thereof;
(7) the failure of a Guarantee by a Subsidiary Guarantor to be in full
force and effect, or the denial or disaffirmance by such entity thereof; or
(8) certain events involving bankruptcy, insolvency or reorganization of
the Company or any Subsidiary of the Company (other than a Non-Recourse
Subsidiary or an Unrestricted Subsidiary).
The Indenture provides that the Trustee may withhold notice to the Holders of
the Notes of any default (except in payment of principal of, or premium, if any,
or interest on the Notes) if the Trustee considers it in the interest of the
Holders of the Notes to do so.
If an Event of Default occurs and is continuing, the Trustee or the Holders
of not less than 25% in principal amount of the Notes outstanding may declare
the principal of and premium, if any, and accrued but unpaid interest on all the
Notes to be due and payable. Upon such a declaration, such principal, premium,
if any, and interest will be due and payable immediately. If an Event of Default
relating to certain events of bankruptcy, insolvency or reorganization of the
Company or any Subsidiary of the Company (other than a Non-Recourse Subsidiary
or an Unrestricted Subsidiary) occurs and is continuing, the principal of, and
premium, if any, and interest on all the Notes will become and be immediately
due and payable without any declaration or other act on the part of the Trustee
or any Holders of the Notes. The amount due and payable on the acceleration of
any Note will be equal to 100% of the principal amount of the Note, plus accrued
and unpaid interest to the date of payment. Under certain circumstances, the
Holders of a majority in principal amount of the outstanding Notes may rescind
any such acceleration with respect to the Notes and its consequences.
No Holder of a Note may pursue any remedy under the Indenture unless
(1) the Trustee shall have received written notice of a continuing Event
of Default,
(2) the Trustee shall have received a request from Holders of at least 25%
in principal amount of the Notes to pursue such remedy,
(3) the Trustee shall have been offered indemnity reasonably
satisfactory to it,
(4) the Trustee shall have failed to act for a period of 60 days after
receipt of such notice, request and offer of indemnity and
(5) no direction inconsistent with such written request has been given to
the Trustee during such 60-day period by the Holders of a majority in
principal amount of the Notes;
provided, however, such provision does not affect the right of a Holder of any
Note to sue for enforcement of any overdue payment thereon.
The Holders of a majority in principal amount of the Notes then outstanding
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
51
certain limitations specified in the Indenture. The Indenture requires the
annual filing by the Company with the Trustee of a written statement as to
compliance with the covenants contained in the Indenture.
MODIFICATION AND WAIVER
Modifications and amendments to the Indenture or the Notes may be made by the
Company, the Subsidiary Guarantors and the Trustee with the consent of the
Holders of a majority in principal amount of the Notes then outstanding;
provided that no such modification or amendment may, without the consent of the
Holder of each Note then outstanding affected thereby,
(1) reduce the percentage of principal amount of Notes whose Holders
must consent to an amendment, supplement or waiver;
(2) reduce the rate or change the time for payment of interest,
including default interest, on any Note;
(3) reduce the principal amount of any Note or change the Maturity Date;
(4) reduce the redemption price, including premium, if any, payable upon
redemption of any Note or change the time at which any Note may or shall be
redeemed;
(5) reduce the purchase price, including the premium, if any, payable upon
the repurchase of any Note upon an Asset Sale or Change in Control, or change
the time at which any Note may or shall be repurchased thereunder;
(6) make any Note payable in money other than that stated in such Note;
(7) impair the right to institute suit for the enforcement of any
payment of principal of, or premium, if any, or interest on, any Note;
(8) make any change in the percentage of principal amount of Notes
necessary to waive compliance with certain provisions of the Indenture; or
(9) waive a continuing Default or Event of Default in the payment of
principal of, premium, if any, or interest on the Notes.
Modifications and amendments of the Indenture may be made by the Company and
the Trustee without the consent of any Holders of the Notes in certain limited
circumstances, including
(a) to cure any ambiguity, omission, defect or inconsistency or
(b) to provide for the assumption of the obligations of the Company or any
Subsidiary Guarantor under the Indenture upon the merger, consolidation or
sale or other disposition of all or substantially all of the assets of the
Company or such Subsidiary Guarantor.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its obligations
discharged with respect to the outstanding Notes ("Legal Defeasance"). Such
Legal Defeasance means that the Company will be deemed to have paid and
discharged the entire Indebtedness represented by such Notes, except for
(1) the rights of Holders of the Notes to receive payments solely from the
trust fund described in the following paragraph in respect of the principal
of, premium, if any, and interest on the Notes when such payments are due,
(2) the Company's obligations with respect to the Notes concerning the
issuance of temporary Notes, transfers and exchanges of the Notes,
replacement of mutilated, destroyed, lost or stolen Notes, the maintenance
52
of an office or agency where the Notes may be surrendered for transfer or
exchange or presented for payment, and duties of paying agents,
(3) the rights, powers, trusts, duties and immunities of the Trustee,
and the Company's obligations in connection therewith and
(4) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants described
under "-- Certain Covenants" ("Covenant Defeasance"), and thereafter any
omission to comply with such obligations shall not constitute a Default or Event
of Default. In the event Covenant Defeasance occurs, certain events (not
including non-payment) described under "-- Events of Default" will no longer
constitute an Event of Default. If we exercise our Legal Defeasance or Covenant
Defeasance option, each Subsidiary Guarantor will be released from all its
obligations under the Indenture and its Guarantee.
In order to exercise either Legal Defeasance or Covenant Defeasance under
the Indenture,
(1) the Company must irrevocably deposit with the Trustee, in trust, for
the benefit of the Holders of the Notes, cash in U.S. Legal Tender, U.S.
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest on
the outstanding amount of the Notes on the Maturity Date or on the applicable
mandatory redemption date, as the case may be, of such principal or
installment of principal, premium, if any, or interest;
(2) in the case of Legal Defeasance, the Company must deliver to the
Trustee an opinion of counsel reasonably acceptable to the Trustee confirming
that
(A) the Company has received from or there has been published by,
the Internal Revenue Service a ruling or
(B) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and
based thereon such opinion of counsel shall confirm that, the Holders of
the Notes will not recognize income, gain or loss for U.S. Federal income
tax purposes as a result of such Legal Defeasance and will be subject to
U.S. Federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had not
occurred;
(3) in the case of Covenant Defeasance, the Company shall have delivered to
the Trustee an opinion of counsel reasonably acceptable to the Trustee to the
effect that the Holders of the Notes will not recognize income, gain or loss
for U.S. Federal income tax purposes as a result of such Covenant Defeasance
and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing on
the date of such deposit or insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under the Indenture or any
other material agreement or instrument to which the Company is a party or by
which the Company is bound;
(6) the Company shall have delivered to the Trustee an officers'
certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders of the Notes over other creditors of the
Company or with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and
53
(7) the Company shall have delivered to the Trustee an officers'
certificate and an opinion of counsel each stating that the Company has
complied with all conditions precedent provided for relating to the Legal
Defeasance or the Covenant Defeasance.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York.
THE TRUSTEE
The Bank of New York is the Trustee under the Indenture. The Bank of New York
also serves as trustee for our 7.875% Senior Notes due 2004, our 8.375% Senior
Notes due 2008, our 8.125% Senior Notes due 2011 and our 8.5% Senior Notes due
2012. We may also maintain banking and other commercial relationships with the
Trustee and its affiliates in the ordinary course of business, and the Trustee
may own our debt securities. Its address is 101 Barclay Street, 8th Floor, New
York, New York 10286. The Company has also appointed the Trustee as the initial
registrar and paying agent under the Indenture.
The Trustee is permitted to become an owner or pledgee of the Notes and may
otherwise deal with the Company or its Subsidiaries or Affiliates with the same
rights it would have if it were not Trustee. If, however, the Trustee acquires
any conflicting interest (as defined in the Trust Indenture Act) after an Event
of Default has occurred and is continuing, it must eliminate such conflict or
resign.
In case an Event of Default shall occur (and be continuing), the Trustee will
be required to use the degree of care and skill of a prudent person in the
conduct of such person's own affairs. The Trustee will be under no obligation to
exercise any of its powers under the Indenture at the request of any of the
Holders of the Notes, unless such Holders have offered the Trustee indemnity
reasonably satisfactory to it.
BOOK ENTRY, DELIVERY AND FORM
The new notes will be issued in the form of one or more global securities.
The global securities will be deposited with, or on behalf of, the Depositary
and registered in the name of the Depositary or its nominee. Except as set forth
below, the global securities may be transferred, in whole and not in part, only
to the Depositary or another nominee of the Depositary. Investors may hold their
beneficial interests in the global securities directly through the Depositary if
they have an account with the Depositary or indirectly through organizations
which have accounts with the Depositary.
Notes that are issued as described below under "-- Certificated Notes" will
be issued in definitive form. Upon the transfer of Notes in definitive form,
such Notes will, unless the global securities have previously been exchanged for
Notes in definitive form, be exchanged for an interest in the global securities
representing the aggregate principal amount of Notes being transferred.
The Depositary has advised the Company as follows: The Depositary is a
limited-purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. The
Depositary was created to hold securities of institutions that have accounts
with the Depositary ("participants") and to facilitate the clearance and
settlement of securities transactions among its participants in such securities
through electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depositary's participants include securities brokers and dealers (which may
include the initial purchasers), banks, trust companies, clearing corporations
and certain other organizations. Access to the Depositary's book-entry system is
also available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
whether directly or indirectly.
The Company expects that pursuant to procedures established by the
Depositary, upon the issuance of the global securities, the Depositary will
credit, on its book-entry registrations and transfer system, the aggregate
principal
54
amount of new notes represented by such global securities to the accounts of
participants exchanging outstanding notes. Ownership of beneficial interests in
the global securities will be limited to participants or Persons that may hold
interests through participants. Ownership of beneficial interests in the global
securities will be shown on, and the transfer of those ownership interests will
be effected only through, records maintained by the Depositary (with respect to
participants' interest) and such participants (with respect to the owners of
beneficial interests in the global securities other than participants). The laws
of some jurisdictions may require that certain purchasers of securities take
physical delivery of such securities in definitive form. Such limits and laws
may impair the ability to transfer or pledge beneficial interests in the global
securities.
So long as the Depositary, or its nominee, is the Holder of the global
securities, the Depositary or such nominee, as the case may be, will be
considered the sole legal owner and Holder of the Notes for all purposes of the
Notes and the Indenture. Except as set forth below, you will not be entitled to
have the Notes represented by the global securities registered in your name,
will not receive or be entitled to receive physical delivery of certificated
Notes in definitive form and will not be considered to be the owner or Holder of
any Notes under the global securities. The Company understands that under
existing industry practice, in the event an owner of a beneficial interest in
the global securities desires to take any action that the Depositary, as the
Holder of the global securities, is entitled to take, the Depositary will
authorize the participants to take such action, and that the participants will
authorize beneficial owners owning through such participants to take such action
or would otherwise act upon the instructions of beneficial owners owning through
them.
The Company will make all payments on Notes represented by the global
securities registered in the name of and held by the Depositary or its nominee
to the Depositary or its nominee, as the case may be, as the owner and Holder of
the global securities.
The Company expects that the Depositary or its nominee, upon receipt of any
payment in respect of the global securities, will credit participants' accounts
with payments in amounts proportionate to their respective beneficial interests
in the aggregate principal amount of the global securities as shown on the
records of the Depositary or its nominee. The Company also expects that payments
by participants to owners of beneficial interest in the global securities held
through such participants will be governed by standing instructions and
customary practices and will be the responsibility of such participants. The
Company will not have any responsibility or liability for any aspect of the
records relating to, or payments made on account of, beneficial ownership
interests in the global securities for any Notes or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests or for
any other aspect of the relationship between the Depositary and its participants
or the relationship between such participants and the owners of beneficial
interests in the global securities owning through such participants.
Although the Depositary has agreed to the foregoing procedures in order to
facilitate transfers of interests in the global securities among participants of
the Depositary, it is under no obligations to perform or continue to perform
such procedures, and such procedures may be discontinued at any time. Neither
the Trustee nor the Company will have any responsibility for the performance by
the Depositary or its participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
CERTIFICATED NOTES
Subject to certain conditions, the Notes represented by the global securities
will be exchangeable for certificated Notes in definitive form of like tenor as
such Notes if
(1) the Depositary notifies the Company that it is unwilling or unable to
continue as Depositary for the global securities and a successor is not
promptly appointed or if at any time the Depositary ceases to be a clearing
agency registered under the Exchange Act or
(2) the Company in its discretion at any time determines not to have all of
the Notes represented by the global securities.
Any Notes that are exchangeable pursuant to the preceding sentence will be
exchanged for certificated Notes issuable in authorized denominations and
registered in such names as the Depositary shall direct. Subject to the
55
foregoing, the global securities are not exchangeable, except for global
securities of the same aggregate denominations to be registered in the name of
the Depositary or its nominee.
56
FEDERAL INCOME TAX CONSIDERATIONS
FEDERAL INCOME TAX CONSIDERATIONS OF THE EXCHANGE OF OUTSTANDING NOTES FOR
NEW NOTES
The following discussion is a summary of certain federal income tax
considerations relevant to the exchange of outstanding notes for new notes, but
does not purport to be a complete analysis of all potential tax effects. The
discussion is based upon the Internal Revenue Code of 1986, as amended, Treasury
Regulations, Internal Revenue Service rulings and pronouncements and judicial
decisions now in effect, all of which may be subject to change at any time by
legislative, judicial or administrative action. These changes may be applied
retroactively in a manner that could adversely affect a holder of new notes. The
description does not consider the effect of any applicable foreign, state, local
or other tax laws or estate or gift tax considerations.
We believe that the exchange of outstanding notes for new notes should not be
an exchange or otherwise a taxable event to a holder for United States federal
income tax purposes. Accordingly, a holder should have the same adjusted issue
price, adjusted basis and holding period in the new notes as it had in the
outstanding notes immediately before the exchange.
57
PLAN OF DISTRIBUTION
Based on interpretations by the staff of the SEC in no action letters issued
to third parties, we believe that you may transfer new notes issued under the
exchange offer in exchange for the outstanding notes if:
- you acquire the new notes in the ordinary course of your business;
and
- you are not engaged in, and do not intend to engage in, and have no
arrangement or understanding with any person to participate in, a
distribution of such new notes.
You may not participate in the exchange offer if you are:
- our "affiliate" within the meaning of Rule 405 under the Securities
Act; or
- a broker-dealer that acquired outstanding notes directly from us.
Each broker-dealer that receives new notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such new notes. To date, the staff of the SEC has
taken the position that broker-dealers may fulfill their prospectus delivery
requirements with respect to transactions involving an exchange of securities
such as this exchange offer, other than a resale of an unsold allotment from the
original sale of the outstanding notes, with the prospectus contained in this
registration statement. This prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer in connection with resales of
new notes received in exchange for outstanding notes where such outstanding
notes were acquired as a result of market-making activities or other trading
activities. We have agreed that, for a period of up to 180 days after the
effective date of this registration statement, we will make this prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale. In addition, until such date, all dealers effecting
transactions in new notes may be required to deliver a prospectus.
If you wish to exchange new notes for your outstanding notes in the exchange
offer, you will be required to make representations to us as described in
"Exchange Offer -- Purpose and Effect of the Exchange Offer" and "-- Procedures
for Tendering -- Your Representations to Us" in this prospectus and in the
letter of transmittal. In addition, if you are a broker-dealer who receives new
notes for your own account in exchange for outstanding notes that were acquired
by you as a result of market-making activities or other trading activities, you
will be required to acknowledge that you will deliver a prospectus in connection
with any resale by you of such new notes.
We will not receive any proceeds from any sale of new notes by
broker-dealers. New notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market:
- in negotiated transactions;
- through the writing of options on the new notes or a combination of
such methods of resale;
- at market prices prevailing at the time of resale; and
- at prices related to such prevailing market prices or negotiated
prices.
Any such resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any such broker-dealer or the purchasers of any such new notes. Any
broker-dealer that resells new notes that were received by it for its own
account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such new notes may be deemed to be an
"underwriter" within the meaning of the Securities Act. The letter of
transmittal states that by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
58
For a period of 180 days after the effective date of this registration
statement, we will promptly send additional copies of this prospectus and any
amendment or supplement to this prospectus to any broker-dealer that requests
such documents in the letter of transmittal. We have agreed to pay all expenses
incident to the exchange offer (including the expenses of one counsel for the
holders of the outstanding notes) other than commissions or concessions of any
broker-dealers and will indemnify the holders of the outstanding notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
59
LEGAL MATTERS
The validity of the new notes offered in this exchange offer will be passed
upon for us by Vinson & Elkins L.L.P. in reliance on the opinion of Commercial
Law Group P.C. with respect to matters of Oklahoma law.
Shannon T. Self, a shareholder in Commercial Law Group, P.C., is a
director of Chesapeake, and he beneficially owns 35,576 shares of our common
stock.
EXPERTS
The consolidated financial statements of Chesapeake Energy Corporation,
incorporated in this prospectus by reference to Chesapeake's annual report on
Form 10-K for the year ended December 31, 2001, and the consolidated financial
statements of Gothic Energy Corporation, incorporated in this prospectus by
reference to Chesapeake's annual report on Form 10-K/A for the year ended
December 31, 2000, have been so incorporated in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
Estimates of the oil and gas reserves of Chesapeake Energy Corporation and
related future net cash flows and the present values thereof, included in
Chesapeake's annual report on Form 10-K for the year ended December 31, 2001,
were based upon reserve reports prepared by Williamson Petroleum Consultants,
Inc., Ryder Scott Company, L.P. and Lee Keeling and Associates, Inc.,
independent petroleum engineers. We have incorporated these estimates in
reliance on the authority of each such firm as experts in such matters.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports and other information with
the SEC. You may inspect and copy such material at the public reference
facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 for more information on the public
reference room. You can also find our SEC filings at the SEC's website at
www.sec.gov and on our website at www.chkenergy.com. Information contained on
our website is not part of this prospectus.
In addition, our reports and other information concerning us can be
inspected at the New York Stock Exchange, 20 Broad Street, New York, New York
10005, where our common stock is listed.
The following documents we filed with the SEC pursuant to the Exchange Act
are incorporated herein by reference:
- the description of our common stock contained in our registration
statement on Form 8-B (No. 001-13726), including the amendment to such
description filed on Form 8-K on August 13, 2001;
- our annual report on Form 10-K for the fiscal year ended December 31,
2001;
- our quarterly reports on Form 10-Q for the fiscal quarters ended March 31,
2002 and June 30, 2002;
- our current reports on Form 8-K filed on January 22, 2002, February 5,
2002, February 21, 2002, March 12, 2002, March 18, 2002, April 4, 2002,
April 16, 2002, April 23, 2002, April 30, 2002, June 5, 2002, July 1,
2002, July 11, 2002, July 22, 2002, July 25, 2002 (as amended on July 30,
2002), July 31, 2002, August 6, 2002 and August 7, 2002 (as amended on
August 8, 2002) (excluding any information filed pursuant to Item 9 on any
such current report on Form 8-K); and
- the consolidated financial statements of Gothic Energy Corporation
included in our annual report on Form 10-K/A for the fiscal year ended
December 31, 2000.
60
All documents filed by us pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date of this filing and prior to the
termination of this offering shall be deemed to be incorporated in this
prospectus and to be a part hereof from the date of the filing of such document.
Any statement contained in a document incorporated by reference herein shall be
deemed to be modified or superseded for all purposes to the extent that a
statement contained in this prospectus, or in any other subsequently filed
document which is also incorporated or deemed to be incorporated by reference,
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this prospectus.
We will provide without charge to each person to whom this prospectus is
delivered, upon written or oral request of such person, a copy of any or all
documents incorporated by reference in this prospectus. Requests for such copies
should be directed to Jennifer M. Grigsby, Secretary, Chesapeake Energy
Corporation, 6100 North Western Avenue, Oklahoma City, Oklahoma 73118, by mail,
or if by telephone at (405) 848-8000.
FORWARD-LOOKING STATEMENTS
This prospectus includes and incorporates by reference "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. Forward-looking statements give our current
expectations or forecasts of future events. They include statements regarding
oil and gas reserve estimates, planned capital expenditures, the drilling of oil
and gas wells and future acquisitions, expected oil and gas production, cash
flow and anticipated liquidity, business strategy and other plans and objectives
for future operations, expected future expenses and utilization of net operating
loss carryforwards. Statements concerning the fair values of derivative
contracts and their estimated contribution to our future results of operations
are based upon market information as of a specific date. These market prices are
subject to significant volatility.
Although we believe the expectations and forecasts reflected in these and
other forward-looking statements are reasonable, we can give no assurance they
will prove to have been correct. They can be affected by inaccurate assumptions
or by known or unknown risks and uncertainties. Factors that could cause actual
results to differ materially from expected results are described under "Risk
Factors" and include:
- the volatility of oil and gas prices;
- our substantial indebtedness;
- the cost and availability of drilling and production services;
- our commodity price risk management activities, including counterparty
contract performance risk;
- uncertainties inherent in estimating quantities of oil and gas reserves,
projecting future rates of production and the timing of development
expenditures;
- our ability to replace reserves;
- the availability of capital;
- uncertainties in evaluating oil and gas reserves of acquired properties and
associated potential liabilities;
- drilling and operating risks;
- our ability to generate future taxable income sufficient to utilize our
federal and state income tax net operating loss (NOL) carryforwards before
their expiration;
- future ownership changes which could result in additional limitations to
our NOLs;
- adverse effects of governmental and environmental regulation;
61
- losses possible from pending or future litigation;
- the strength and financial resources of our competitors; and
- the loss of officers or key employees.
We caution you not to place undue reliance on these forward-looking
statements, which speak only as of the date of this prospectus or as of the date
of the report or document in which they are contained, and we undertake no
obligation to update such information. We urge you to carefully review and
consider the disclosures made in this prospectus and our reports filed with the
SEC and incorporated by reference herein that attempt to advise interested
parties of the risks and factors that may affect our business.
62
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 1031 of the Oklahoma General Corporation Act, under which Chesapeake
is incorporated, authorizes the indemnification of directors and officers under
certain circumstances. Article VIII of the Certificate of Incorporation of
Chesapeake and Article VI of the Bylaws of Chesapeake also provide for
indemnification of directors and officers under certain circumstances. These
provisions, together with Chesapeake's indemnification obligations under
individual indemnity agreements with its directors and officers, may be
sufficiently broad to indemnify such persons for liabilities under the
Securities Act of 1933 (the "Securities Act"), as amended. In addition,
Chesapeake maintains insurance, which insures its directors and officers against
certain liabilities.
The Oklahoma General Corporation Act provides for indemnification of each of
Chesapeake's officers and directors against (a) expenses, including attorneys'
fees, judgments, fines and amounts paid in settlement actually and reasonably
incurred by them in connection with any action, suit or proceeding brought by
reason of such person being or having been a director, officer, employee or
agent of Chesapeake, or of any other corporation, partnership, joint venture,
trust or other enterprise at the request of Chesapeake, other than an action by
or in the right of Chesapeake. To be entitled to indemnification, the individual
must have acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interest of Chesapeake, and with respect to any criminal
action, the person seeking indemnification had no reasonable cause to believe
that the conduct was unlawful and (b) expenses, including attorneys' fees,
actually and reasonably incurred in connection with the defense or settlement of
any action or suit by or in the right of Chesapeake brought by reason of the
person seeking indemnification being or having been a director, officer,
employee or agent of Chesapeake, or any other corporation, partnership, joint
venture, trust or other enterprise at the request of Chesapeake, provided the
actions were in good faith and were reasonably believed to be in or not opposed
to the best interest of Chesapeake, except that no indemnification shall be made
in respect of any claim, issue or matter as to which the individual shall have
been adjudged liable to Chesapeake, unless and only to the extent that the court
in which such action was decided has determined that the person is fairly and
reasonably entitled to indemnity for such expenses which the court deems proper.
Article VIII of Chesapeake's Certificate of Incorporation provides for
indemnification of Chesapeake's director and officers. The Oklahoma General
Corporation Act also permits Chesapeake to purchase and maintain insurance on
behalf of Chesapeake's directors and officers against any liability arising out
of their status as such, whether or not Chesapeake would have the power to
indemnify them against such liability. These provisions may be sufficiently
broad to indemnify such persons for liabilities arising under the Securities
Act.
Chesapeake has entered into indemnity agreements with each of its directors
and executive officers. Under each indemnity agreement, Chesapeake will pay on
behalf of the indemnitee any amount which he is or becomes legally obligated to
pay because of (a) any claim or claims from time to time threatened or made
against him by any person because of any act or omission or neglect or breach of
duty, including any actual or alleged error or misstatement or misleading
statement, which he commits or suffers while acting in his capacity as a
director and/or officer of Chesapeake or an affiliate or (b) being a party, or
being threatened to be made a party, to any threatened, pending or contemplated
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was an officer, director,
employee or agent of Chesapeake or an affiliate or is or was serving at the
request of Chesapeake as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise. The payments
which Chesapeake would be obligated to make under an indemnification agreement
could include damages, charges, judgments, fines, penalties, settlements and
costs, cost of investigation and cost of defense of legal, equitable or criminal
actions, claims or proceedings and appeals therefrom, and costs of attachment,
supersedeas, bail, surety or other bonds. Chesapeake also provides liability
insurance for each of its directors and executive officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits. The following exhibits are filed herewith pursuant to the
requirements of Item 601 of Regulation S-K:
II-1
EXHIBIT DESCRIPTION
NO.
------- -----------
3.1 Chesapeake's Restated Certificate of Incorporation together with
the Certificate of Designation for the 6.75% Cumulative
Convertible Preferred Stock of Chesapeake and the Certificate of
Designation for the Series A Junior Participating Preferred Stock
of Chesapeake. Incorporated herein by reference to Exhibit 3.1
to Chesapeake's registration statement on Form S-3 filed July 22,
2002.
3.2 Chesapeake's Bylaws. Incorporated herein by reference to Exhibit
3.2 to Chesapeake's quarterly report on Form 10-Q for the quarter
ended June 30, 2001.
4.1.1 Indenture dated as of March 15, 1997 among Chesapeake, as issuer,
Chesapeake Operating, Inc., Chesapeake Gas Development
Corporation and Chesapeake Exploration Limited Partnership, as
Subsidiary Guarantors, and The Bank of New York (formerly United
States Trust Company of New York), as Trustee, with respect to
7.875% Senior Notes due 2004. Incorporated herein by reference
to Exhibit 4.1 to Chesapeake's registration statement on Form S-4
(No. 333-24995). First Supplemental Indenture dated December 17,
1997 and Second Supplemental Indenture dated February 16, 1998.
Incorporated herein by reference to Exhibit 4.1.1 to Chesapeake's
transition report on Form 10-K for the six months ended December
31, 1997. Second [Third] Supplemental Indenture dated April 22,
1998. Incorporated herein by reference to Exhibit 4.1.1 to
Chesapeake's registration statement on Form S-3 registration
statement (No. 333-57235). Fourth Supplemental Indenture dated
July 1, 1998. Incorporated herein by reference to Exhibit 4.1.1
to Chesapeake's quarterly report on Form 10-Q for the quarter
ended September 30, 1998. Fifth Supplemental Indenture dated
November 19, 1999. Incorporated herein by reference to Exhibit
4.1.1 to Chesapeake's quarterly report on Form 10-Q for the
quarter ended March 31, 2001. Sixth Supplemental Indenture dated
December 31, 1999. Incorporated herein by reference to Exhibit
4.1.1 to Chesapeake's quarterly report on Form 10-Q for the
quarter ended September 30, 2001. Seventh Supplemental Indenture
dated September 12, 2001. Incorporated herein by reference to
Exhibit 4.1.2 to Chesapeake's quarterly report on Form 10-Q for
the quarter ended September 30, 2001. Eighth Supplemental
Indenture dated October 1, 2001. Incorporated herein by
reference to Exhibit 4.1.3 to Chesapeake's quarterly report on
Form 10-Q for the quarter ended September 30, 2001. Ninth
Supplemental Indenture dated December 17, 2001. Incorporated
herein by reference to Exhibit 4.1.1 to Chesapeake's registration
statement on Form S-3 (No. 333-76546).
4.1.2* Tenth Supplemental Indenture dated as of June 28, 2002 to
Indenture dated as of March 15, 1997 among Chesapeake, as issuer,
Chesapeake Operating, Inc., Chesapeake Gas Development Corporation
and Chesapeake Exploration Limited Partnership, as Subsidiary
Guarantors, and The Bank of New York (formerly United States Trust
Company of New York), as Trustee, with respect to 7.875% Senior
Notes due 2004.
4.1.3* Eleventh Supplemental Indenture dated as of July 8, 2002 to
Indenture dated as of March 15, 1997 among Chesapeake, as issuer,
Chesapeake Operating, Inc., Chesapeake Gas Development Corporation
and Chesapeake Exploration Limited Partnership, as Subsidiary
Guarantors, and The Bank of New York (formerly United States Trust
Company of New York), as Trustee, with respect to 7.875% Senior
Notes due 2004.
4.2.1 Indenture dated as of March 15, 1997 among Chesapeake, as issuer,
Chesapeake Operating, Inc., Chesapeake Gas Development
Corporation and Chesapeake Exploration Limited Partnership, as
Subsidiary Guarantors, and The Bank of New York (formerly United
States Trust Company of New York), as Trustee, with respect to
8.5% Senior Notes due 2012. Incorporated herein by reference to
Exhibit 4.3 to Chesapeake's registration statement on Form S-4
(No. 333-24995). First Supplemental Indenture dated December 17,
1997 and Second Supplemental Indenture dated February 16, 1998.
Incorporated herein by reference to Exhibit 4.2.1 to Chesapeake's
transition report on Form 10-K for the six months ended December
31, 1997. Second [Third] Supplemental Indenture dated April 22,
1998. Incorporated herein by reference to Exhibit 4.2.1 to
Chesapeake's Amendment No. 1 to Form S-3 registration statement
(No. 333-57235). Fourth Supplemental Indenture dated July 1,
1998. Incorporated herein by reference to Exhibit 4.2.1 to
Chesapeake's quarterly report on Form 10-Q for the quarter ended
September 30, 1998. Fifth Supplemental Indenture dated November
19, 1999. Incorporated herein by reference to Exhibit 4.2.1 to
Chesapeake's quarterly report on Form 10-Q for the quarter ended
March 31, 2001. Sixth Supplemental Indenture dated December 31,
1999. Incorporated herein by reference to Exhibit 4.2.1 to
Chesapeake's
II-2
EXHIBIT DESCRIPTION
NO.
------- -----------
quarterly report on Form 10-Q for the quarter ended September 30,
2001. Seventh Supplemental Indenture dated September 12, 2001.
Incorporated herein by reference to Exhibit 4.2.2 to Chesapeake's
quarterly report on Form 10-Q for the quarter ended September 30,
2001. Eighth Supplemental Indenture dated October 1, 2001.
Incorporated herein by reference to Exhibit 4.2.3 to Chesapeake's
quarterly report on Form 10-Q for the quarter ended September 30,
2001. Ninth Supplemental Indenture dated December 17, 2001.
Incorporated herein by reference to Exhibit 4.2.1 to Chesapeake's
registration statement on Form S-3 (No. 333-76546).
4.2.2* Tenth Supplemental Indenture dated as of June 28, 2002 to
Indenture dated as of March 15, 1997 among Chesapeake, as issuer,
Chesapeake Operating, Inc., Chesapeake Gas Development Corporation
and Chesapeake Exploration Limited Partnership, as Subsidiary
Guarantors, and The Bank of New York (formerly United States Trust
Company of New York), as Trustee, with respect to 8.5% Senior
Notes due 2012.
4.2.3* Eleventh Supplemental Indenture dated as of July 8, 2002 to
Indenture dated as of March 15, 1997 among Chesapeake, as issuer,
Chesapeake Operating, Inc., Chesapeake Gas Development Corporation
and Chesapeake Exploration Limited Partnership, as Subsidiary
Guarantors, and The Bank of New York (formerly United States Trust
Company of New York), as Trustee, with respect to 8.5% Senior
Notes due 2012.
4.3.1 Indenture dated as of April 6, 2001 among Chesapeake, as issuer,
its subsidiaries signatory thereto, as Subsidiary Guarantors, and
The Bank of New York (formerly United States Trust Company of New
York), as Trustee, with respect to 8.125% Senior Notes due 2011.
Incorporated herein by reference to Exhibit 4.6 to Chesapeake's
quarterly report on Form 10-Q for the quarter ended March 31,
2001. Supplemental Indenture dated May 14, 2001. Incorporated
herein by reference to Exhibit 4.6 to Chesapeake's quarterly
report on Form 10-Q for the quarter ended March 31, 2001. Second
Supplemental Indenture dated September 12, 2001. Incorporated
herein by reference to Exhibit 4.3.1 to Chesapeake's quarterly
report on Form 10-Q for the quarter ended September 30, 2001.
Third Supplemental Indenture dated October 1, 2001. Incorporated
herein by reference to Exhibit 4.3.2 to Chesapeake's quarterly
report on Form 10-Q for the quarter ended September 30, 2001.
Fourth Supplemental Indenture dated December 17, 2001.
Incorporated herein by reference to Exhibit 4.3.1 to Chesapeake's
registration statement on Form S-3 (No. 333-76546).
4.3.2* Fifth Supplemental Indenture dated as of June 28, 2002 to
Indenture dated as of April 6, 2001 among Chesapeake, as issuer,
its subsidiaries signatory thereto, as Subsidiary Guarantors, and
The Bank of New York (formerly United States Trust Company of New
York), as Trustee, with respect to 8.125% Senior Notes due 2011.
4.3.3* Sixth Supplemental Indenture dated July 8, 2002 to Indenture dated
as of April 6, 2001 among Chesapeake, as issuer, its subsidiaries
signatory thereto, as Subsidiary Guarantors, and The Bank of New
York (formerly United States Trust Company of New York), as
Trustee, with respect to 8.125% Senior Notes due 2011.
4.4.1 Indenture dated as of November 5, 2001 among Chesapeake, as
issuer, its subsidiaries signatory thereto, as Subsidiary
Guarantors and The Bank of New York, as Trustee, with respect to
8.375% Senior Notes due 2008. Incorporated herein by reference
to Exhibit 4.16 to Chesapeake's registration statement on Form
S-4 (No. 333-74584). First Supplemental Indenture dated December
17, 2001. Incorporated herein by reference to Exhibit 4.16.1 to
Chesapeake's registration statement on Form S-3 (No. 333-76546).
II-3
EXHIBIT DESCRIPTION
NO.
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4.4.2* Second Supplemental Indenture dated as of June 28, 2002 to
Indenture dated as of November 5, 2001 among Chesapeake, as
issuer, its subsidiaries signatory thereto, as Subsidiary
Guarantors and The Bank of New York, as Trustee, with respect to
8.375% Senior Notes due 2008.
4.4.3* Third Supplemental Indenture dated as of July 8, 2002 to Indenture
dated as of November 5, 2001 among Chesapeake, as issuer, its
subsidiaries signatory thereto, as Subsidiary Guarantors and The
Bank of New York, as Trustee, with respect to 8.375% Senior Notes
due 2008.
4.5 Agreement to furnish copies of unfiled long-term debt instruments.
Incorporated herein by reference to Chesapeake's transition report
on Form 10-K for the six months ended December 31, 1997.
4.6.1 $225,000,000 Second Amended and Restated Credit Agreement, dated
as of June 11, 2001, among Chesapeake Energy Corporation,
Chesapeake Exploration Limited Partnership, as Borrower, Bear
Stearns Corporate Lending Inc., as Syndication Agent, Union Bank
of California, N.A., as Administrative Agent and Collateral Agent,
BNP Paribas and Toronto Dominion (Texas), Inc., as
Co-Documentation Agents and other lenders party thereto.
Incorporated herein by reference to Exhibit 4.6 to Chesapeake's
quarterly report on Form 10-Q for the quarter ended June 30, 2001.
Consent and waiver letter dated September 10, 2001 and consent and
waiver letter dated October 5, 2001. Incorporated herein by
reference to Exhibits 4.6.1 and 4.6.2 to Chesapeake's quarterly
report on Form 10-Q for the quarter ended September 30, 2001,
respectively. Consent and waiver letter dated November 2, 2001.
Incorporated herein by reference to Exhibit 4.6.1 to Chesapeake's
registration statement on Form S-4 (No. 333-74584). First
Amendment dated March 8, 2002 with respect to Second Amended and
Restated Credit Agreement. Incorporated herein by reference to
Exhibit 4.6.1 to Chesapeake's annual report on Form 10-K for the
year ended December 31, 2001. Consent and waiver letter dated
April 15, 2002. Incorporated herein by reference to Exhibit 4.6.1
to Chesapeake's quarterly report on Form 10-Q for the quarter
ended March 31, 2002. Second Amendment dated June 4, 2002 with
respect to Second Amended and Restated Credit Agreement.
Incorporated by reference to Exhibit 4.6.1 to Chesapeake's
quarterly report on Form 10-Q for the quarter ended June 30, 2002.
4.6.2* Consent and waiver letter dated August 2, 2002 with respect to
$225,000,000 Second Amended and Restated Credit Agreement, dated
as of June 11, 2001, among Chesapeake Energy Corporation,
Chesapeake Exploration Limited Partnership, as Borrower, Bear
Stearns Corporate Lending Inc., as Syndication Agent, Union Bank
of California, N.A., as Administrative Agent and Collateral
Agent, BNP Paribas and Toronto Dominion (Texas), Inc., as
Co-Documentation Agents and other lenders party thereto.
4.7 Warrant Agreement dated as of September 9, 1997 between Gothic
Energy Corporation and UMB Bank, N.A. (formerly American Stock
Transfer & Trust Company), as warrant agent, and Supplement to
Warrant Agreement dated as of January 16, 2001. Incorporated
herein by reference to Exhibit 4.9 to Registrant's annual report
on Form 10-K for the year ended December 31, 2000.
4.8 Registration Rights Agreement dated as of September 9, 1997 among
Gothic Energy Corporation, two of its subsidiaries, Oppenheimer &
Co., Inc., Banc One Capital Corporation and Paribas Corporation.
Incorporated herein by reference to Exhibit 4.10 to Registrant's
annual report on Form 10-K for the year ended December 31, 2000.
4.9 Warrant Agreement dated as of January 23, 1998 between Gothic
Energy Corporation and UMB Bank, N.A. (formerly American Stock
Transfer & Trust Company), as warrant agent. Incorporated herein
by reference to Exhibit 4.11 to Registrant's annual report on Form
10-K for the year ended December 31, 2000.
4.10 Common Stock Registration Rights Agreement dated as of January 23,
1998 among Gothic Energy Corporation and purchasers of its senior
redeemable preferred stock. Incorporated herein by reference to
Exhibit 4.12 to Registrant's annual report on Form 10-K for the
year ended December 31, 2000.
II-4
EXHIBIT DESCRIPTION
NO.
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4.11 Substitute Warrant to Purchase Common Stock of Chesapeake Energy
Corporation dated as of January 16, 2001 issued to Amoco
Corporation. Incorporated herein by reference to Exhibit 4.13 to
Registrant's annual report on Form 10-K for the year ended
December 31, 2000.
4.12 Warrant Agreement dated as of April 21, 1998 between Gothic Energy
Corporation and American Stock Transfer & Trust Company, as
warrant agent, and Supplement to Warrant Agreement dated as of
January 16, 2001. Incorporated herein by reference to Exhibit 4.14
to Registrant's annual report on Form 10-K for the year ended
December 31, 2000.
4.13 Warrant Registration Rights Agreement dated as of April 21, 1998
among Gothic Energy Corporation and purchasers of units consisting
of its 14-1/8% senior secured discount notes due 2006 and warrants
to purchase its common stock. Incorporated herein by reference to
Exhibit 4.15 to Registrant's annual report on Form 10-K for the
year ended December 31, 2000.
4.14* Indenture dated as of August 12, 2002 among Chesapeake, as issuer,
its subsidiaries signatory thereto, as Subsidiary Guarantors and
The Bank of New York, with respect to its 9% Senior Notes due
2012.
4.15 Rights Agreement dated as of July 15, 1998 between Chesapeake and
UMB Bank, N.A., as rights agent. Incorporated herein by
reference to Exhibit 1 to Chesapeake's registration statement on
Form 8-A filed July 16, 1998. Amendment No. 1 dated September
11, 1998. Incorporated herein by reference to Exhibit 10.3 to
Chesapeake's quarterly report on Form 10-Q for the quarter ended
September 30, 1998.
5.1* Opinion of Vinson & Elkins L.L.P. regarding the validity of the
securities being registered.
5.2* Opinion of Commercial Law Group, P.C. regarding the validity of
the securities being registered.
10.1.1+ Chesapeake's 1992 Incentive Stock Option Plan. Incorporated
herein by reference to Exhibit 10.1.1 to Chesapeake's
registration statement on Form S-4 (No. 33-93718).
10.1.2+ Chesapeake's 1992 Nonstatutory Stock Option Plan, as Amended.
Incorporated herein by reference to Exhibit 10.1.2 to
Chesapeake's quarterly report on Form 10-Q for the quarter ended
December 31, 1996.
10.1.3+ Chesapeake's 1994 Stock Option Plan, as amended. Incorporated
herein by reference to Exhibit 10.1.3 to Chesapeake's quarterly
report on Form 10-Q for the quarter ended December 31, 1996.
10.1.4+ Chesapeake's 1996 Stock Option Plan. Incorporated herein by
reference to Chesapeake's Proxy Statement for its 1996 Annual
Meeting of Shareholders.
10.1.5+ Chesapeake's 1999 Stock Option Plan. Incorporated herein by
reference to Exhibit 10.1.5 to Chesapeake's quarterly report on
Form 10-Q for the quarter ended June 30, 1999.
10.1.6+ Chesapeake's 2000 Employee Stock Option Plan. Incorporated
herein by reference to Exhibit 10.1.6 to Chesapeake's quarterly
report on Form 10-Q for the quarter ended March 31, 2000.
10.1.7+ Chesapeake's 2000 Executive Officer Stock Option Plan.
Incorporated herein by reference to Exhibit 10.1.7 to
Chesapeake's quarterly report on Form 10-Q for the quarter ended
March 31, 2000.
10.1.8+ Chesapeake's 2001 Stock Option Plan. Incorporated herein by
reference to Exhibit B to Chesapeake's definitive proxy statement
for its 2001 annual meeting of shareholders filed April 30, 2001.
10.1.9+ Chesapeake's 2001 Executive Officer Stock Option Plan.
Incorporated herein by reference to Exhibit 10.1.9 to
Chesapeake's quarterly report on Form 10-Q for the quarter ended
June 30, 2001.
10.1.10+ Chesapeake's 2001 Nonqualified Stock Option Plan. Incorporated
herein by reference to Exhibit 10.1.10 to Chesapeake's quarterly
report on Form 10-Q for the quarter ended June 30, 2001.
10.1.11+ Chesapeake's 2002 Stock Option Plan. Incorporated herein by
reference to Exhibit A to Chesapeake's definitive proxy statement
for its 2002 annual meeting of shareholders filed April 29, 2002.
II-5
EXHIBIT DESCRIPTION
NO.
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10.1.12+ Chesapeake's 2002 Non-Employee Director Stock Option Plan.
Incorporated herein by reference to Exhibit B to Chesapeake's
definitive proxy statement for its 2002 annual meeting of
shareholders filed April 29, 2002.
10.1.12+ Chesapeake's 2002 Nonqualified Stock Option Plan. Incorporated
herein by reference to Exhibit 10.1.11 to Chesapeake's quarterly
report on Form 10-Q for the quarter ended June 30, 2002.
10.2.1+ Second Amended and Restated Employment Agreement dated as of July
1, 2001, between Aubrey K. McClendon and Chesapeake Energy
Corporation. Incorporated herein by reference to Exhibit 4.7 to
Chesapeake's quarterly report on Form 10-Q for the quarter ended
September 30, 2001.
10.2.2+ Second Amended and Restated Employment Agreement dated as of July
1, 2001, between Tom L. Ward and Chesapeake Energy Corporation.
Incorporated herein by reference to Exhibit 4.8 to Chesapeake's
quarterly report on Form 10-Q for the quarter ended September 30,
2001.
10.2.3+ Amended and Restated Employment Agreement dated as of August 1,
2000 between Marcus C. Rowland and Chesapeake Energy
Corporation. Incorporated herein by reference to Exhibit 10.2.3
to Chesapeake's registration statement on Form S-1 (No.
333-45872).
10.2.4+ Employment Agreement dated as of July 1, 2000, between Michael A.
Johnson and Chesapeake Energy Corporation. Incorporated herein by
reference to Exhibit 10.2.8 to Chesapeake's quarterly report on
Form 10-Q for the quarter ended June 30, 2000.
10.2.5+ Employment Agreement dated as of July 1, 2000, between Martha A.
Burger and Chesapeake Energy Corporation. Incorporated herein by
reference to Exhibit 10.2.9 to Chesapeake's quarterly report on
Form 10-Q for the quarter ended June 30, 2000.
10.3+ Form of Indemnity Agreement for officers and directors of
Chesapeake and its subsidiaries. Incorporated herein by
reference to Exhibit 10.30 to Chesapeake's registration statement
on Form S-1 (No. 33-55600).
10.4.1 Amended and Restated Consulting Agreement dated January 11, 2001
between Chesapeake Energy Corporation and Michael Paulk.
Incorporated herein by reference to Exhibit 10.4.1 to Chesapeake's
annual report on Form 10-K for the year ended December 31, 2000.
10.4.2 Amended and Restated Consulting Agreement dated January 11, 2001
between Chesapeake Energy Corporation and Steven P. Ensz.
Incorporated herein by reference to Exhibit 10.4.2 to
Chesapeake's annual report on Form 10-K for the year ended
December 31, 2000.
10.10 Partnership Agreement of Chesapeake Exploration Limited
Partnership dated December 27, 1994 between Chesapeake Energy
Corporation and Chesapeake Operating, Inc. Incorporated herein by
reference to Exhibit 10.10 to Chesapeake's registration statement
on Form S-4 (No. 33-93718).
10.11 Amended and Restated Limited Partnership Agreement of Chesapeake
Louisiana, L.P. dated June 30, 1997 between Chesapeake
Operating, Inc. and Chesapeake Energy Louisiana Corporation.
Incorporated herein by reference to Exhibit 10.11 to Chesapeake's
annual report on Form 10-K for the year ended June 30, 1997.
12 Computation of Ratios of Earnings and Fixed Charges.
Incorporated herein by reference to Exhibit 12.1 to Chesapeake's
quarterly report on Form 10-Q for the quarter ended June 30, 2002.
21* Subsidiaries of Chesapeake.
23.1* Consent of PricewaterhouseCoopers LLP.
23.2* Consent of Williamson Petroleum Consultants, Inc.
23.3* Consent of Ryder Scott Company L.P.
23.4* Consent of Lee Keeling and Associates, Inc.
23.5* Consent of Vinson & Elkins L.L.P. (included in Exhibit 5.1).
23.6* Consent of Commercial Law Group, P.C. (included in Exhibit 5.2).
24.1* Power of Attorney (included in the signature pages of this
Registration Statement).
II-6
EXHIBIT
NO. DESCRIPTION
------- -----------
25.1* Statement of Eligibility on Form T-1 of The Bank of New York.
99.1* Form of Letter of Transmittal.
99.2* Form of Letter to Clients.
99.3* Form of Letter to Registered Holders and DTC Participants.
99.4* Form of Notice of Guaranteed Delivery.
___________________
* Filed herewith.
+ Management contract or compensatory plan or arrangement.
(b) Financial Statement Schedules. Incorporated herein by reference to
Item 8 of Chesapeake's annual report on Form 10-K for the year ended December
31, 2000, as amended.
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of any
Registrant, we have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by any Registrant of expenses incurred
or paid by a director, officer or controlling person of such Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, such Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
Each registrant hereby undertakes
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(a) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than 20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the effective
registration statement;
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement; and
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
II-7
(4) That, for purposes of determining any liability under the Securities Act
of 1933, each filing of the registrants annual report pursuant to section 13(a)
or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(5) To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding to
the request.
(6) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in this Registration Statement when it
became effective.
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Oklahoma City, State of
Oklahoma on August 30, 2002.
CHESAPEAKE ENERGY CORPORATION
By: /s/ Aubrey K. McClendon
-----------------------
Aubrey K. McClendon
Chairman of the Board and
Chief Executive Officer
Each person whose signature appears below authorizes Aubrey K. McClendon
and Marcus C. Rowland, and each of them, each of whom may act without joinder of
the other, to execute in the name of each such person who is then an officer or
director of the company and to file any amendments to this registration
statement necessary or advisable to enable the company to comply with the
Securities Act of 1933, as amended, and any rules, regulations and requirements
of the Securities and Exchange Commission in respect thereof, in connection with
the registration of the securities which are the subject of this registration
statement, which amendments may make such changes in the registration statement
as such attorney may deem appropriate. Pursuant to the requirements of the
Securities Act of 1933, this registration statement has been signed by the
following persons in the capacities and on the date indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ Aubrey K. McClendon Chairman of the Board, August 30, 2002
- -------------------------------- Chief Executive Officer and
Aubrey K. McClendon Director (Principal
Executive Officer)
President, Chief Operating August 30, 2002
/s/ Tom L. Ward Officer and Director
- -------------------------------- (Principal Executive
Tom L. Ward Officer)
/s/ Marcus C. Rowland Executive Vice President August 30, 2002
- -------------------------------- and Chief Financial Officer
Marcus C. Rowland (Principal Financial
Officer)
Senior Vice President -- August 30, 2002
/s/ Michael A. Johnson Accounting, Controller
- -------------------------------- and Chief Accounting
Michael A. Johnson Officer (Principal
Accounting Officer)
Director August 30, 2002
/s/ Edgar F. Heizer
- --------------------------------
Edgar F. Heizer, Jr.
Director August 30, 2002
/s/ Breene M. Kerr
- --------------------------------
Breene M. Kerr
Director August 30, 2002
/s/ Shannon T. Shelf
- --------------------------------
Shannon T. Self
Director August 30, 2002
/s/ Fredrick B. Whittemore
- --------------------------------
Frederick B. Whittemore
II-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Oklahoma City, State of
Oklahoma on August 30, 2002.
THE AMES COMPANY, INC.
CARMEN ACQUISTION CORP.
CHESAPEAKE ACQUISITION CORPORATION
CHESAPEAKE MOUNTAIN FRONT CORP.
CHESAPEAKE ROYALTY COMPANY
CHESAPEAKE OPERATING, INC.
GOTHIC ENERGY CORPORATION
GOTHIC PRODUCTION CORPORATION
NOMAC DRILLING CORPORATION
SAP ACQUISITION CORP.
CHESAPEAKE KNAN ACQUISITION CORPORATION
CHESAPEAKE ENO ACQUISITION CORP.
CHESAPEAKE BETA CORP.
CHESAPEAKE DELTA CORP.
CHESAPEAKE FOCUS CORP.
By: /s/ Marcus C. Rowland
-----------------------------------
Name: Marcus C. Rowland
Title: Vice President
Each person whose signature appears below authorizes Aubrey K. McClendon
and Marcus C. Rowland, and each of them, each of whom may act without joinder of
the other, to execute in the name of each such person who is then an officer or
director of the company and to file any amendments to this registration
statement necessary or advisable to enable the company to comply with the
Securities Act of 1933, as amended, and any rules, regulations and requirements
of the Securities and Exchange Commission in respect thereof, in connection with
the registration of the securities which are the subject of this registration
statement, which amendments may make such changes in the registration statement
as such attorney may deem appropriate. Pursuant to the requirements of the
Securities Act of 1933, this registration statement has been signed by the
following persons in the capacities and on the date indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
President and Director August 30, 2002
/s/ Aubrey K. McClendon (Principal Executive
- ----------------------------------- Officer)
Aubrey K. McClendon
Vice President and Director August 30, 2002
/s/ Tom L. Ward
- -----------------------------------
Tom L. Ward
Vice President (Principal August 30, 2002
/s/ Marcus C. Rowland Financial and Accounting
- ----------------------------------- Officer)
Marcus C. Rowland
II-10
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Oklahoma City, State of
Oklahoma on August 30, 2002.
CHESAPEAKE ENERGY LOUISIANA CORPORATION
By: /s/ Aubrey K. McClendon
-----------------------------------
Name: Aubrey K. McClendon
Title: Chief Executive Officer
Each person whose signature appears below authorizes Aubrey K. McClendon
and Marcus C. Rowland, and each of them, each of whom may act without joinder of
the other, to execute in the name of each such person who is then an officer or
director of the company and to file any amendments to this registration
statement necessary or advisable to enable the company to comply with the
Securities Act of 1933, as amended, and any rules, regulations and requirements
of the Securities and Exchange Commission in respect thereof, in connection with
the registration of the securities which are the subject of this registration
statement, which amendments may make such changes in the registration statement
as such attorney may deem appropriate. Pursuant to the requirements of the
Securities Act of 1933, this registration statement has been signed by the
following persons in the capacities and on the date indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ Aubrey K. McClendon Chief Executive Officer August 30, 2002
- -------------------------------- and Director (Principal
Aubrey K. McClendon Executive Officer)
/s/ Tom L. Ward President, Chief August 30, 2002
- -------------------------------- Operating Officer and
Tom L. Ward Director
/s/ Marcus C. Rowland Vice President and Chief August 30, 2002
- -------------------------------- Financial Officer
Marcus C. Rowland (Principal Financial and
Accounting Officer)
II-11
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Oklahoma City, State of
Oklahoma on August 30, 2002.
CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP
CHESAPEAKE LOUISIANA, L.P.
CHESAPEAKE PANHANDLE LIMITED PARTNERSHIP
CHESAPEAKE-STAGHORN ACQUISITION L.P.
CHESAPEAKE SIGMA, L.P.
By Chesapeake Operating, Inc., as general
partner of each respective entity
By: /s/ Aubrey K. McClendon
-----------------------------------
Name: Aubrey K. McClendon
Title: Chief Executive Officer
Each person whose signature appears below authorizes Aubrey K. McClendon
and Marcus C. Rowland, and each of them, each of whom may act without joinder of
the other, to execute in the name of each such person who is then an officer or
director of the company and to file any amendments to this registration
statement necessary or advisable to enable the company to comply with the
Securities Act of 1933, as amended, and any rules, regulations and requirements
of the Securities and Exchange Commission in respect thereof, in connection with
the registration of the securities which are the subject of this registration
statement, which amendments may make such changes in the registration statement
as such attorney may deem appropriate. Pursuant to the requirements of the
Securities Act of 1933, this registration statement has been signed by the
following persons in the capacities and on the date indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ Aubrey K. McClendon Chief Executive August 30, 2002
- -------------------------------- Officer and Director
Aubrey K. McClendon of Chesapeake
Operating, Inc.
(Principal Executive
Officer)
/s/ Tom L. Ward President, Chief August 30, 2002
- -------------------------------- Operating Officer and
Tom L. Ward Director of
Chesapeake Operating,
Inc.
/s/ Marcus C. Rowland Executive Vice August 30, 2002
- -------------------------------- President - Finance
Marcus C. Rowland and Chief Financial
Officer of Chesapeake
Operating, Inc.
(Principal Financial
and Accounting
Officer)
II-12
EXHIBIT INDEX
EXHIBIT DESCRIPTION
NO.
------- -----------
3.1 Chesapeake's Restated Certificate of Incorporation together with
the Certificate of Designation for the 6.75% Cumulative
Convertible Preferred Stock of Chesapeake and the Certificate of
Designation for the Series A Junior Participating Preferred Stock
of Chesapeake. Incorporated herein by reference to Exhibit 3.1
to Chesapeake's registration statement on Form S-3 filed July 22,
2002.
3.2 Chesapeake's Bylaws. Incorporated herein by reference to Exhibit
3.2 to Chesapeake's quarterly report on Form 10-Q for the quarter
ended June 30, 2001.
4.1.1 Indenture dated as of March 15, 1997 among Chesapeake, as issuer,
Chesapeake Operating, Inc., Chesapeake Gas Development
Corporation and Chesapeake Exploration Limited Partnership, as
Subsidiary Guarantors, and The Bank of New York (formerly United
States Trust Company of New York), as Trustee, with respect to
7.875% Senior Notes due 2004. Incorporated herein by reference
to Exhibit 4.1 to Chesapeake's registration statement on Form S-4
(No. 333-24995). First Supplemental Indenture dated December 17,
1997 and Second Supplemental Indenture dated February 16, 1998.
Incorporated herein by reference to Exhibit 4.1.1 to Chesapeake's
transition report on Form 10-K for the six months ended December
31, 1997. Second [Third] Supplemental Indenture dated April 22,
1998. Incorporated herein by reference to Exhibit 4.1.1 to
Chesapeake's registration statement on Form S-3 registration
statement (No. 333-57235). Fourth Supplemental Indenture dated
July 1, 1998. Incorporated herein by reference to Exhibit 4.1.1
to Chesapeake's quarterly report on Form 10-Q for the quarter
ended September 30, 1998. Fifth Supplemental Indenture dated
November 19, 1999. Incorporated herein by reference to Exhibit
4.1.1 to Chesapeake's quarterly report on Form 10-Q for the
quarter ended March 31, 2001. Sixth Supplemental Indenture dated
December 31, 1999. Incorporated herein by reference to Exhibit
4.1.1 to Chesapeake's quarterly report on Form 10-Q for the
quarter ended September 30, 2001. Seventh Supplemental Indenture
dated September 12, 2001. Incorporated herein by reference to
Exhibit 4.1.2 to Chesapeake's quarterly report on Form 10-Q for
the quarter ended September 30, 2001. Eighth Supplemental
Indenture dated October 1, 2001. Incorporated herein by
reference to Exhibit 4.1.3 to Chesapeake's quarterly report on
Form 10-Q for the quarter ended September 30, 2001. Ninth
Supplemental Indenture dated December 17, 2001. Incorporated
herein by reference to Exhibit 4.1.1 to Chesapeake's registration
statement on Form S-3 (No. 333-76546).
4.1.2* Tenth Supplemental Indenture dated as of June 28, 2002 to
Indenture dated as of March 15, 1997 among Chesapeake, as issuer,
Chesapeake Operating, Inc., Chesapeake Gas Development Corporation
and Chesapeake Exploration Limited Partnership, as Subsidiary
Guarantors, and The Bank of New York (formerly United States Trust
Company of New York), as Trustee, with respect to 7.875% Senior
Notes due 2004.
4.1.3* Eleventh Supplemental Indenture dated as of July 8, 2002 to
Indenture dated as of March 15, 1997 among Chesapeake, as issuer,
Chesapeake Operating, Inc., Chesapeake Gas Development Corporation
and Chesapeake Exploration Limited Partnership, as Subsidiary
Guarantors, and The Bank of New York (formerly United States Trust
Company of New York), as Trustee, with respect to 7.875% Senior
Notes due 2004.
4.2.1 Indenture dated as of March 15, 1997 among Chesapeake, as issuer,
Chesapeake Operating, Inc., Chesapeake Gas Development
Corporation and Chesapeake Exploration Limited Partnership, as
Subsidiary Guarantors, and The Bank of New York (formerly United
States Trust Company of New York), as Trustee, with respect to
8.5% Senior Notes due 2012. Incorporated herein by reference to
Exhibit 4.3 to Chesapeake's registration statement on Form S-4
(No. 333-24995). First Supplemental Indenture dated December 17,
1997 and Second Supplemental Indenture dated February 16, 1998.
Incorporated herein by reference to Exhibit 4.2.1 to Chesapeake's
transition report on Form 10-K for the six months ended December
31, 1997. Second [Third] Supplemental Indenture dated April 22,
1998. Incorporated herein by reference to Exhibit 4.2.1 to
Chesapeake's Amendment No. 1 to Form S-3 registration statement
(No. 333-57235). Fourth Supplemental Indenture dated July 1,
1998. Incorporated herein by reference to Exhibit 4.2.1 to
Chesapeake's quarterly report on Form 10-Q for the quarter ended
September 30, 1998. Fifth Supplemental Indenture dated November
19, 1999. Incorporated herein by reference to Exhibit 4.2.1 to
Chesapeake's quarterly report on Form 10-Q for the quarter ended
March 31, 2001. Sixth Supplemental Indenture dated December 31,
1999. Incorporated herein by reference to Exhibit 4.2.1 to
Chesapeake's
EXHIBIT DESCRIPTION
NO.
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quarterly report on Form 10-Q for the quarter ended September 30,
2001. Seventh Supplemental Indenture dated September 12, 2001.
Incorporated herein by reference to Exhibit 4.2.2 to Chesapeake's
quarterly report on Form 10-Q for the quarter ended September 30,
2001. Eighth Supplemental Indenture dated October 1, 2001.
Incorporated herein by reference to Exhibit 4.2.3 to Chesapeake's
quarterly report on Form 10-Q for the quarter ended September 30,
2001. Ninth Supplemental Indenture dated December 17, 2001.
Incorporated herein by reference to Exhibit 4.2.1 to Chesapeake's
registration statement on Form S-3 (No. 333-76546).
4.2.2* Tenth Supplemental Indenture dated as of June 28, 2002 to
Indenture dated as of March 15, 1997 among Chesapeake, as issuer,
Chesapeake Operating, Inc., Chesapeake Gas Development Corporation
and Chesapeake Exploration Limited Partnership, as Subsidiary
Guarantors, and The Bank of New York (formerly United States Trust
Company of New York), as Trustee, with respect to 8.5% Senior
Notes due 2012.
4.2.3* Eleventh Supplemental Indenture dated as of July 8, 2002 to
Indenture dated as of March 15, 1997 among Chesapeake, as issuer,
Chesapeake Operating, Inc., Chesapeake Gas Development Corporation
and Chesapeake Exploration Limited Partnership, as Subsidiary
Guarantors, and The Bank of New York (formerly United States Trust
Company of New York), as Trustee, with respect to 8.5% Senior
Notes due 2012.
4.3.1 Indenture dated as of April 6, 2001 among Chesapeake, as issuer,
its subsidiaries signatory thereto, as Subsidiary Guarantors, and
The Bank of New York (formerly United States Trust Company of New
York), as Trustee, with respect to 8.125% Senior Notes due 2011.
Incorporated herein by reference to Exhibit 4.6 to Chesapeake's
quarterly report on Form 10-Q for the quarter ended March 31,
2001. Supplemental Indenture dated May 14, 2001. Incorporated
herein by reference to Exhibit 4.6 to Chesapeake's quarterly
report on Form 10-Q for the quarter ended March 31, 2001. Second
Supplemental Indenture dated September 12, 2001. Incorporated
herein by reference to Exhibit 4.3.1 to Chesapeake's quarterly
report on Form 10-Q for the quarter ended September 30, 2001.
Third Supplemental Indenture dated October 1, 2001. Incorporated
herein by reference to Exhibit 4.3.2 to Chesapeake's quarterly
report on Form 10-Q for the quarter ended September 30, 2001.
Fourth Supplemental Indenture dated December 17, 2001.
Incorporated herein by reference to Exhibit 4.3.1 to Chesapeake's
registration statement on Form S-3 (No. 333-76546).
4.3.2* Fifth Supplemental Indenture dated as of June 28, 2002 to
Indenture dated as of April 6, 2001 among Chesapeake, as issuer,
its subsidiaries signatory thereto, as Subsidiary Guarantors, and
The Bank of New York (formerly United States Trust Company of New
York), as Trustee, with respect to 8.125% Senior Notes due 2011.
4.3.3* Sixth Supplemental Indenture dated July 8, 2002 to Indenture dated
as of April 6, 2001 among Chesapeake, as issuer, its subsidiaries
signatory thereto, as Subsidiary Guarantors, and The Bank of New
York (formerly United States Trust Company of New York), as
Trustee, with respect to 8.125% Senior Notes due 2011.
4.4.1 Indenture dated as of November 5, 2001 among Chesapeake, as
issuer, its subsidiaries signatory thereto, as Subsidiary
Guarantors and The Bank of New York, as Trustee, with respect to
8.375% Senior Notes due 2008. Incorporated herein by reference
to Exhibit 4.16 to Chesapeake's registration statement on Form
S-4 (No. 333-74584). First Supplemental Indenture dated December
17, 2001. Incorporated herein by reference to Exhibit 4.16.1 to
Chesapeake's registration statement on Form S-3 (No. 333-76546).
EXHIBIT DESCRIPTION
NO.
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4.4.2* Second Supplemental Indenture dated as of June 28, 2002 to
Indenture dated as of November 5, 2001 among Chesapeake, as
issuer, its subsidiaries signatory thereto, as Subsidiary
Guarantors and The Bank of New York, as Trustee, with respect to
8.375% Senior Notes due 2008.
4.4.3* Third Supplemental Indenture dated as of July 8, 2002 to Indenture
dated as of November 5, 2001 among Chesapeake, as issuer, its
subsidiaries signatory thereto, as Subsidiary Guarantors and The
Bank of New York, as Trustee, with respect to 8.375% Senior Notes
due 2008.
4.5 Agreement to furnish copies of unfiled long-term debt instruments.
Incorporated herein by reference to Chesapeake's transition report
on Form 10-K for the six months ended December 31, 1997.
4.6.1 $225,000,000 Second Amended and Restated Credit Agreement, dated
as of June 11, 2001, among Chesapeake Energy Corporation,
Chesapeake Exploration Limited Partnership, as Borrower, Bear
Stearns Corporate Lending Inc., as Syndication Agent, Union Bank
of California, N.A., as Administrative Agent and Collateral
Agent, BNP Paribas and Toronto Dominion (Texas), Inc., as
Co-Documentation Agents and other lenders party thereto.
Incorporated herein by reference to Exhibit 4.6 to Chesapeake's
quarterly report on Form 10-Q for the quarter ended June 30,
2001. Consent and waiver letter dated September 10, 2001 and
consent and waiver letter dated October 5, 2001. Incorporated
herein by reference to Exhibits 4.6.1 and 4.6.2 to Chesapeake's
quarterly report on Form 10-Q for the quarter ended September 30,
2001, respectively. Consent and waiver letter dated November 2,
2001. Incorporated herein by reference to Exhibit 4.6.1 to
Chesapeake's registration statement on Form S-4 (No. 333-74584).
First Amendment dated March 8, 2002 with respect to Second
Amended and Restated Credit Agreement. Incorporated herein by
reference to Exhibit 4.6.1 to Chesapeake's annual report on Form
10-K for the year ended December 31, 2001. Consent and waiver
letter dated April 15, 2002. Incorporated herein by reference to
Exhibit 4.6.1 to Chesapeake's quarterly report on Form 10-Q for
the quarter ended March 31, 2002. Second Amendment dated June 4,
2002 with respect to Second Amended and Restated Credit
Agreement. Incorporated by reference to Exhibit 4.6.1 to
Chesapeake's quarterly report on Form 10-Q for the quarter ended
June 30, 2002.
4.6.2* Consent and waiver letter dated August 2, 2002 with respect to
$225,000,000 Second Amended and Restated Credit Agreement, dated
as of June 11, 2001, among Chesapeake Energy Corporation,
Chesapeake Exploration Limited Partnership, as Borrower, Bear
Stearns Corporate Lending Inc., as Syndication Agent, Union Bank
of California, N.A., as Administrative Agent and Collateral
Agent, BNP Paribas and Toronto Dominion (Texas), Inc., as
Co-Documentation Agents and other lenders party thereto.
4.7 Warrant Agreement dated as of September 9, 1997 between Gothic
Energy Corporation and UMB Bank, N.A. (formerly American Stock
Transfer & Trust Company), as warrant agent, and Supplement to
Warrant Agreement dated as of January 16, 2001. Incorporated
herein by reference to Exhibit 4.9 to Registrant's annual report
on Form 10-K for the year ended December 31, 2000.
4.8 Registration Rights Agreement dated as of September 9, 1997 among
Gothic Energy Corporation, two of its subsidiaries, Oppenheimer &
Co., Inc., Banc One Capital Corporation and Paribas Corporation.
Incorporated herein by reference to Exhibit 4.10 to Registrant's
annual report on Form 10-K for the year ended December 31, 2000.
4.9 Warrant Agreement dated as of January 23, 1998 between Gothic
Energy Corporation and UMB Bank, N.A. (formerly American Stock
Transfer & Trust Company), as warrant agent. Incorporated herein
by reference to Exhibit 4.11 to Registrant's annual report on Form
10-K for the year ended December 31, 2000.
4.10 Common Stock Registration Rights Agreement dated as of January 23,
1998 among Gothic Energy Corporation and purchasers of its senior
redeemable preferred stock. Incorporated herein by reference to
Exhibit 4.12 to Registrant's annual report on Form 10-K for the
year ended December 31, 2000.
EXHIBIT DESCRIPTION
NO.
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4.11 Substitute Warrant to Purchase Common Stock of Chesapeake Energy
Corporation dated as of January 16, 2001 issued to Amoco
Corporation. Incorporated herein by reference to Exhibit 4.13 to
Registrant's annual report on Form 10-K for the year ended
December 31, 2000.
4.12 Warrant Agreement dated as of April 21, 1998 between Gothic Energy
Corporation and American Stock Transfer & Trust Company, as
warrant agent, and Supplement to Warrant Agreement dated as of
January 16, 2001. Incorporated herein by reference to Exhibit 4.14
to Registrant's annual report on Form 10-K for the year ended
December 31, 2000.
4.13 Warrant Registration Rights Agreement dated as of April 21, 1998
among Gothic Energy Corporation and purchasers of units consisting
of its 14-1/8% senior secured discount notes due 2006 and warrants
to purchase its common stock. Incorporated herein by reference to
Exhibit 4.15 to Registrant's annual report on Form 10-K for the
year ended December 31, 2000.
4.14* Indenture dated as of August 12, 2002 among Chesapeake, as issuer,
its subsidiaries signatory thereto, as Subsidiary Guarantors and
The Bank of New York, with respect to its 9% Senior Notes due
2012.
4.15 Rights Agreement dated as of July 15, 1998 between Chesapeake and
UMB Bank, N.A., as rights agent. Incorporated herein by
reference to Exhibit 1 to Chesapeake's registration statement on
Form 8-A filed July 16, 1998. Amendment No. 1 dated September
11, 1998. Incorporated herein by reference to Exhibit 10.3 to
Chesapeake's quarterly report on Form 10-Q for the quarter ended
September 30, 1998.
5.1* Opinion of Vinson & Elkins L.L.P. regarding the validity of the
securities being registered.
5.2* Opinion of Commercial Law Group, P.C. regarding the validity of
the securities being registered.
10.1.1+ Chesapeake's 1992 Incentive Stock Option Plan. Incorporated
herein by reference to Exhibit 10.1.1 to Chesapeake's
registration statement on Form S-4 (No. 33-93718).
10.1.2+ Chesapeake's 1992 Nonstatutory Stock Option Plan, as Amended.
Incorporated herein by reference to Exhibit 10.1.2 to
Chesapeake's quarterly report on Form 10-Q for the quarter ended
December 31, 1996.
10.1.3+ Chesapeake's 1994 Stock Option Plan, as amended. Incorporated
herein by reference to Exhibit 10.1.3 to Chesapeake's quarterly
report on Form 10-Q for the quarter ended December 31, 1996.
10.1.4+ Chesapeake's 1996 Stock Option Plan. Incorporated herein by
reference to Chesapeake's Proxy Statement for its 1996 Annual
Meeting of Shareholders.
10.1.5+ Chesapeake's 1999 Stock Option Plan. Incorporated herein by
reference to Exhibit 10.1.5 to Chesapeake's quarterly report on
Form 10-Q for the quarter ended June 30, 1999.
10.1.6+ Chesapeake's 2000 Employee Stock Option Plan. Incorporated
herein by reference to Exhibit 10.1.6 to Chesapeake's quarterly
report on Form 10-Q for the quarter ended March 31, 2000.
10.1.7+ Chesapeake's 2000 Executive Officer Stock Option Plan.
Incorporated herein by reference to Exhibit 10.1.7 to
Chesapeake's quarterly report on Form 10-Q for the quarter ended
March 31, 2000.
10.1.8+ Chesapeake's 2001 Stock Option Plan. Incorporated herein by
reference to Exhibit B to Chesapeake's definitive proxy statement
for its 2001 annual meeting of shareholders filed April 30, 2001.
10.1.9+ Chesapeake's 2001 Executive Officer Stock Option Plan.
Incorporated herein by reference to Exhibit 10.1.9 to
Chesapeake's quarterly report on Form 10-Q for the quarter ended
June 30, 2001.
10.1.10+ Chesapeake's 2001 Nonqualified Stock Option Plan. Incorporated
herein by reference to Exhibit 10.1.10 to Chesapeake's quarterly
report on Form 10-Q for the quarter ended June 30, 2001.
10.1.11+ Chesapeake's 2002 Stock Option Plan. Incorporated herein by
reference to Exhibit A to Chesapeake's definitive proxy statement
for its 2002 annual meeting of shareholders filed April 29, 2002.
EXHIBIT DESCRIPTION
NO.
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10.1.12+ Chesapeake's 2002 Non-Employee Director Stock Option Plan.
Incorporated herein by reference to Exhibit B to Chesapeake's
definitive proxy statement for its 2002 annual meeting of
shareholders filed April 29, 2002.
10.1.12+ Chesapeake's 2002 Nonqualified Stock Option Plan. Incorporated
herein by reference to Exhibit 10.1.11 to Chesapeake's quarterly
report on Form 10-Q for the quarter ended June 30, 2002.
10.2.1+ Second Amended and Restated Employment Agreement dated as of July
1, 2001, between Aubrey K. McClendon and Chesapeake Energy
Corporation. Incorporated herein by reference to Exhibit 4.7 to
Chesapeake's quarterly report on Form 10-Q for the quarter ended
September 30, 2001.
10.2.2+ Second Amended and Restated Employment Agreement dated as of July
1, 2001, between Tom L. Ward and Chesapeake Energy Corporation.
Incorporated herein by reference to Exhibit 4.8 to Chesapeake's
quarterly report on Form 10-Q for the quarter ended September 30,
2001.
10.2.3+ Amended and Restated Employment Agreement dated as of August 1,
2000 between Marcus C. Rowland and Chesapeake Energy
Corporation. Incorporated herein by reference to Exhibit 10.2.3
to Chesapeake's registration statement on Form S-1 (No.
333-45872).
10.2.4+ Employment Agreement dated as of July 1, 2000, between Michael A.
Johnson and Chesapeake Energy Corporation. Incorporated herein by
reference to Exhibit 10.2.8 to Chesapeake's quarterly report on
Form 10-Q for the quarter ended June 30, 2000.
10.2.5+ Employment Agreement dated as of July 1, 2000, between Martha A.
Burger and Chesapeake Energy Corporation. Incorporated herein by
reference to Exhibit 10.2.9 to Chesapeake's quarterly report on
Form 10-Q for the quarter ended June 30, 2000.
10.3+ Form of Indemnity Agreement for officers and directors of
Chesapeake and its subsidiaries. Incorporated herein by
reference to Exhibit 10.30 to Chesapeake's registration statement
on Form S-1 (No. 33-55600).
10.4.1 Amended and Restated Consulting Agreement dated January 11, 2001
between Chesapeake Energy Corporation and Michael Paulk.
Incorporated herein by reference to Exhibit 10.4.1 to Chesapeake's
annual report on Form 10-K for the year ended December 31, 2000.
10.4.2 Amended and Restated Consulting Agreement dated January 11, 2001
between Chesapeake Energy Corporation and Steven P. Ensz.
Incorporated herein by reference to Exhibit 10.4.2 to
Chesapeake's annual report on Form 10-K for the year ended
December 31, 2000.
10.10 Partnership Agreement of Chesapeake Exploration Limited
Partnership dated December 27, 1994 between Chesapeake Energy
Corporation and Chesapeake Operating, Inc. Incorporated herein by
reference to Exhibit 10.10 to Chesapeake's registration statement
on Form S-4 (No. 33-93718).
10.11 Amended and Restated Limited Partnership Agreement of Chesapeake
Louisiana, L.P. dated June 30, 1997 between Chesapeake
Operating, Inc. and Chesapeake Energy Louisiana Corporation.
Incorporated herein by reference to Exhibit 10.11 to Chesapeake's
annual report on Form 10-K for the year ended June 30, 1997.
12 Computation of Ratios of Earnings and Fixed Charges.
Incorporated herein by reference to Exhibit 12.1 to Chesapeake's
quarterly report on Form 10-Q for the quarter ended June 30, 2002.
21* Subsidiaries of Chesapeake.
23.1* Consent of PricewaterhouseCoopers LLP.
23.2* Consent of Williamson Petroleum Consultants, Inc.
23.3* Consent of Ryder Scott Company L.P.
23.4* Consent of Lee Keeling and Associates, Inc.
23.5* Consent of Vinson & Elkins L.L.P. (included in Exhibit 5.1).
23.6* Consent of Commercial Law Group, P.C. (included in Exhibit 5.2).
24.1* Power of Attorney (included in the signature pages of this
Registration Statement).
EXHIBIT
NO. DESCRIPTION
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25.1* Statement of Eligibility on Form T-1 of The Bank of New York.
99.1* Form of Letter of Transmittal.
99.2* Form of Letter to Clients.
99.3* Form of Letter to Registered Holders and DTC Participants.
99.4* Form of Notice of Guaranteed Delivery.
- ----------
* Filed herewith.
+ Management contract or compensatory plan or arrangement.